The brokerage said AI monetisation remains a key structural debate for the sector. While early adoption could create near-term deflationary pressure on effort-based revenues, meaningful AI-led scale-up could take time to emerge.

Within the Tier-I IT segment, Choice favours Tata Consultancy Services Ltd (TCS) and Tech Mahindra Ltd, citing stronger margin resilience and deal conversion. In the mid-cap space, it prefers Coforge Ltd and Persistent Systems Ltd, given their growth visibility, deal momentum and execution.

Choice expects the IT sector's re-rating to become increasingly stock-specific and execution-led rather than broad-based.

TCS, Tech Mahindra: Choice's view

Choice has a 'Reduce' rating on TCS, with a target price of Rs 2,320.

For Tech Mahindra, the brokerage has an 'Add' rating and a target price of Rs 1,780. It said, "We have raised our Tech Mahindra target price to Rs 1,780, based on a 20x FY28E EPS multiple (Rs 1,600 earlier)."

Coforge, Persistent Systems: Choice's preferred mid-cap picks

Choice has a 'Buy' rating on Coforge, with a target price of Rs 2,050.

The brokerage has also assigned a 'Buy' rating to Persistent Systems, with a target price of Rs 6,350.

On deal activity, Choice said, "Deal momentum remained healthy, with strong bookings contrasting with subdued revenue conversion. Tier-I continued to secure large transformation deals, led by TCS."

The brokerage added, "Tier-II remained stronger, led by Persistent's record $1.15 billion TCV (Total Contract Value) and Coforge's robust executable order book."