Jefferies Downgrades Infosys to Hold as AI Concerns Weigh on Indian IT Sector
On February 23, 2025, Jefferies downgraded Infosys Limited (INFY) from Buy to Hold and set a new price target of $14.31. The downgrade was not an isolated move — Jefferies simultaneously cut ratings on six major Indian IT services companies, including TCS, HCL Tech, Mphasis, LTIMindtree, and Hexaware Technologies, in a sweeping reassessment of the sector’s outlook in the age of artificial intelligence.
Why the Rating Changed
Jefferies’ downgrade of Infosys was driven by several interconnected factors, all centered on the growing impact of AI on the traditional IT services business model:
- AI disruption to revenue mix: Jefferies stated that AI is likely to shift the revenue mix in IT services toward consulting and implementation work, potentially displacing the large-scale outsourcing and maintenance contracts that have long been the bread and butter of firms like Infosys. The brokerage summarized its thesis with the phrase “P(AI)n Not Over Yet,” signaling that the negative effects of AI on traditional IT services firms are still unfolding.
- Earnings estimate cuts across the sector: Jefferies cut earnings estimates by 1–4% across Indian IT firms and now expects just 6% earnings CAGR over FY26–28. This tepid growth outlook reflects the brokerage’s view that demand headwinds and margin pressures tied to the AI transition will persist.
- Significant price target reduction: For Infosys specifically, Jefferies slashed its target price by 31% (to Rs 1,290 on the Indian exchange, equivalent to the $14.31 ADR target). Cuts of similar magnitude — up to 33% — were applied across the other downgraded IT names, underscoring how broadly Jefferies has recalibrated its expectations for the sector.
- Preference for AI-aligned players: Notably, Jefferies identified Coforge, Sagility, and IKS Health as its preferred picks in the space — companies it views as better positioned to benefit from the shift toward AI-driven consulting and implementation work, rather than being disrupted by it.
The downgrade reflects a structural concern rather than a reaction to a single quarterly result. Jefferies appears to be making a larger call that the traditional IT outsourcing model faces a prolonged period of slower growth and margin compression as clients increasingly adopt AI tools that reduce their dependence on large offshore labor forces.
Infosys Dividend Profile
For income-focused investors, Infosys currently pays an annual dividend of $0.52 per share, which translates to a dividend yield of approximately 3.52%. The most recent ex-dividend date was October 26, 2025.
While the yield is relatively attractive compared to many technology-sector peers, investors should weigh this against the reduced earnings growth expectations. A projected 6% earnings CAGR over FY26–28 leaves limited room for aggressive dividend increases, though Infosys has historically maintained a strong commitment to shareholder returns through dividends and buybacks.
What This Means for Investors
Jefferies’ sector-wide downgrade marks a notable shift in sentiment toward Indian IT services. The move suggests that the market may need to reprice these stocks for a world where AI accelerates changes in how enterprises consume technology services. Infosys, as one of the largest and most widely held names in the space, will be closely watched for signs that it can adapt its business mix — or for evidence that Jefferies’ concerns are overstated.
Investors holding INFY for its dividend should monitor upcoming earnings reports for commentary on AI-related demand trends, deal pipeline composition, and any changes to the company’s capital allocation policy.
Disclaimer: This blog post is for informational purposes only and does not constitute financial advice. Readers should conduct their own research and consult with a qualified financial advisor before making any investment decisions.