60% of Nifty IT stocks below long-term range; Infosys, TCS, Wipro near 2008 valuations

Nearly 60% of the Nifty IT index (by market capitalisation), including Infosys and TCS, is currently trading below the 33rd percentile of its historical valuation range, even as return ratios and cash generation remain strong, according to a report by DSP Mutual Fund.

In simple terms, a large part of the sector looks cheaper than usual despite fundamentals holding up well. The report indicates a clear gap between market sentiment and business performance. Large IT companies, which are delivering return on invested capital (ROIC) of over 45% and maintaining strong balance sheets, are now trading at around 17.5x trailing earnings—levels that, in several cases, are close to or even below those seen after the 2008 global financial crisis.

This trend is visible among index heavyweights Infosys and Tata Consultancy Services , which together make up nearly half of the index. Infosys, with a 29.2% weight, is at the 23rd percentile of its valuation range, trading at a P/E of 17.6, backed by a 29% return on equity (ROE) and a 6% free cash flow yield. TCS looks even more attractively priced, sitting at just the 6th percentile with a P/E of 16.7, while delivering a sector-leading ROE of 52% and steady cash flows.

On the other hand, some mid-tier IT companies continue to trade at a premium. Tech Mahindra and Persistent Systems are at the higher end of their valuation ranges, with percentiles of 82% and 79%, respectively. Persistent, in particular, stands out with a high P/E of 43 and a low free cash flow yield of 1%, indicating that future growth expectations are already reflected in its price. Coforge shows a similar pattern, with elevated valuations and relatively modest cash flow yields.

A few companies sit somewhere in the middle. HCL Technologies offers a balanced profile with a P/E of 21.6 and a healthy 6% free cash flow yield. LTIMindtree also appears steady, supported by strong cash reserves, with cash making up about 11% of its market capitalisation.

Wipro , meanwhile, stands out as a value pick within the sector. It is trading at just the 15th percentile with a P/E of 15.2, and it also offers the highest free cash flow yield at 8%. Its balance sheet is particularly strong, with cash accounting for 29% of its market cap, even though its return ratios are relatively lower than peers.

The report highlights that, as of March 2026, IT companies were holding cash equivalent to about 9% of their market capitalisation and generating free cash flow yields of over 6%. At the same time, the sector is witnessing its most oversold technical levels since the 2008 crisis and has significantly underperformed global technology stocks.

This pressure on valuations is largely due to weak near-term sentiment. A slowdown in discretionary tech spending, softer deal momentum, and concerns around global growth have weighed on the sector. As a result, investor positioning has turned cautious.

However, the report makes it clear that the underlying business quality remains intact. Most companies continue to generate strong cash flows, maintain largely debt-free balance sheets, and deliver healthy ROE. Even in a downside scenario—such as zero revenue growth and some margin pressure—the likely impact is limited to moderate valuation correction rather than any structural damage to the businesses.

Another important point is positioning. The IT sector’s weight in the Nifty 50 is near multi-year lows, suggesting that it is currently under-owned by investors. While uncertainties remain around the pace of AI-led disruption, the report suggests that much of the near-term risk is already priced in.