India's IT sector is facing fresh pressure, and that has prompted Morgan Stanley, Goldman Sachs and Citi to lower target prices across several large- and mid-cap IT stocks, citing weak demand, slowing earnings growth and limited near-term catalysts for a sector re-rating.
Morgan Stanley downgraded TCS to Equal-weight from Overweight while slashing its target price to Rs 2,200 from Rs 2,880. The brokerage also reduced price targets for Infosys, HCLTech, Wipro, Tech Mahindra, LTIMindtree, Tata Elxsi, Cyient and others. It, however, raised its target price on Coforge to Rs 1,700, reiterating its Overweight rating.
Goldman Sachs also maintained a neutral-to-negative stance on the sector, saying Indian IT services are headed for a fourth consecutive year of low single-digit growth. The brokerage continues to prefer TCS, citing relatively better valuation comfort, while remaining cautious on Wipro and Tech Mahindra.
Citi echoed a similar view, cutting target prices on TCS, Infosys, HCLTech, Tech Mahindra, Wipro and Persistent Systems, while maintaining a Sell rating on most large-cap IT names.
Across brokerages, Coforge and Mphasis remain among the preferred picks, while weak demand, AI-led investments, wage hikes and margin pressures continue to weigh on the broader sector outlook.
Morgan Stanley on IT Sector
- TCS – Downgrade to Equal-weight with Overweight; Cut TP to Rs 2200 from Rs 2880
- Infosys – Maintain Equal-weight; Cut TP to Rs 1112 from Rs 1380
- Wipro – Maintain Underweight; Cut TP to Rs 161 from Rs 192
- Tech Mahindra – Maintain Underweight; Cut TP to Rs 1160 from Rs 1410
- HCL Tech – Maintain Equal-weight; Cut TP to Rs 1105 from Rs 1410
- L&T Tech – Maintain Equal-weight; Cut TP to Rs 3460 from Rs 3530
- LTM – Maintain Equal-weight; Cut TP to Rs 4000 from Rs 4410
- Cyient – Maintain Underweight; Cut TP to Rs 820 from Rs 900
- Tata Elxsi – Maintain Underweight; Cut TP to Rs 3780 from Rs 4200
- Coforge – Maintain Overweight; Hike TP to Rs 1700 from Rs 1500
- During the 2015-17 cycle, large-cap stocks bottomed out at 11-13x two-year forward P/E
- See room for further downside from here
- TCS's premium to Accenture has risen to 40%+, which puts the entire group's multiples at risk in the near term
- Expect a muted Q1 with subdued commentary for Q2; see risks to FY27 revenue guidance ranges
- Sharp currency depreciation helped mitigate margin pressure; refresh/renewal cycle to bring margin pressure from here
- Low-single-digit EPS CAGRs could mean further P/E de-rating
- Key ideas: Prefer Infosys and TCS over Wipro. Tech Mahindra, and HCLTech in large caps
- Prefer Mphasis and Coforge over ER&D plays
Citi on IT Sector
- Infosys: Maintain Neutral; Cut target price to Rs 1080 (Rs 1300 Earlier)
- Wipro: Maintain Sell; Cut target price to Rs 160 (Rs 175 Earlier)
- TCS: Maintain Sell; Cut Target Price to Rs 1965 (Rs 2250 Earlier)
- Tech Mahindra: Maintain Sell; Cut target price to Rs 1220 (Earlier Rs 1275)
- Persistent Systems: Maintain Sell; Cut target price to Rs 4090 (Earlier Rs 4230)
- LTM: Maintain Sell; Cut target price to Rs 3455 (Earlier Rs 3850)
- HCL Technologies: Maintains Neutral; Cut target price to Rs 1135 (Earlier Rs 1385)
- LTTS: Maintain Sell; Raises target price to Rs 3065 (Rs 2970 Earlier)
- Mphasis: Maintain Neutral; Raises target price to Rs 2365 (Earlier Rs 2310)
- Coforge: Maintain Sell; Raises target price to Rs 1235 (Earlier Rs 1165)
- Hexaware Technologies: Maintain Neutral; Raises target price to Rs 490 (Rs 455 Earlier)
Goldman Sachs on IT Sector
- TCS: Rated buy; Cut target price to Rs 2410 (Earlier Rs 2710)
- Infosys: Rated Neutral; Cut target price to Rs 1140 (Earlier Rs 1290)
- LTM: Rated Neutral; Cut target price to Rs 3870 (Earlier Rs 4210)
- HCLTech: Rated Neutral; Cut target price to Rs 1180 (Earlier Rs 1340)
- Wipro: Rated Sell; Cut target price to Rs 179 (Earlier Rs 187)
- TechM: Rated Sell; Cut target price to Rs 1400 (Earlier Rs 1410)
- Overall stance remains neutral to negative on India IT
- Buy only on TCS due to relatively better valuation comfort
- Demand environment remains weak
- India IT heading towards fourth straight year of low single-digit growth
- Valuation and weak growth outlook seen as not very compelling
- Sector EBIT margins likely to decline ~30 bps QoQ
- Pressure led by wage hikes, AI investments and competition
- Limited near-term triggers for valuation re-rating in sector
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