UBS Cuts IT Sector Target Price But Sees More Upside Than Downside
UBS has downgraded the target price for Indian IT companies, citing company-specific issues that are expected to drag revenue growth. Despite this, recent market correction has been overdone, according to the brokerage, as it sees more upside than downside in the sector.
Given the negative sentiment, IT stocks were underperforming on fears of US growth slowdown, impacting the Indian IT industry. Despite these headwinds, UBS sees value in the sector, with Indian IT stocks currently trading at a 5% discount to their five-year average. The brokerage is also anticipating a near-term sector rebound.
However, with reduced valuations and improved outlook, the stocks were trading in the green on Tuesday, extending their advance for the fourth consecutive day. The Nifty IT rose 2.30% intraday to 38,073.05, the highest level since March 6. The rise in IT shares comes after US President Donald Trump softened his stance on tariffs.
Shares of all major Indian IT companies advanced with L&T Technology Services Ltd., Coforge Ltd., and Mphasis Ltd. rising nearly 3%, while Tata Consultancy Services Ltd., Persistent Systems Ltd., HCL Technologies Ltd., and Infosys Ltd. added between 2% and 3%. Shares of LTIMindtree Ltd., Wipro Ltd. and Tech Mahindra Ltd. were trading in the green.
IT Companies Earnings To Outperform Fiscal 2025
UBS expects a 5-7% earnings cut for consensus estimates, but maintains a positive outlook for financial year 2026, anticipating it to outperform fiscal 2025.
The de-rating of IT stocks has largely been attributed to concerns over a potential US slowdown, although UBS counters these fears with factors like Fed rate cuts and corporate tax reductions, which may boost tech spending. While there is uncertainty around client spending, UBS' discussions with IT management teams suggest only a marginal impact. They also note that hyperscalers' slowed growth was due to a supply shortage rather than a lack of demand. Cloud migration and cost optimisation are expected to remain key drivers for IT companies through fiscal 2026.
UBS Cuts Target Price
However, UBS warns that company-specific challenges, such as deal ramp-downs at TCS, HCL Tech, and Infosys, will affect revenue growth. For large-cap companies, soft revenue growth is anticipated in the fourth quarter, with minor declines expected for Infosys and Wipro. On the margin front, TCS and Tech Mahindra may see slight improvements, while margins for Infosys, Wipro, and HCL Tech could decline modestly.
Keeping these points in mind, UBS has cut the target price of TCS to Rs 4,250 from Rs 4,650, while the target price for Infosys has been reduced to Rs 2,100 apiece. The target price for Wipro has also been cut to Rs 315 per share. The brokerage also reduced the target price of HCL Tech and Tech Mahindra to Rs 2,030 and Rs 1,470, respectively.
-
Indians Are Travelling, But Not Every Journey Is A Holiday | The Week In Whys
Pilgrims, patients and working women are the real travellers, and the system hasn't quite caught up with them.
-
Getting To Work Costs Women More | The Reason Why
It is not just about women paying more than men. It is about women paying much more in cities than in villages.
-
AI Bias In Investing Cannot Be Eliminated, But It Can Be Governed
Framing is a particularly important example as identical financial information presented in terms of gains rather than losses can lead an LLM to reach a different assessment.
-
Joining The Dots | Dark Skies, Steady Diya: Why Hope Holds This Diwali
With war, a weak rupee and foreign outflows weighing on sentiment, policymakers at the NDTV World Summit and market veterans at NDTV Profit Ignite: Diwali Edition offered the same advice: stay invested and filter out the noise.
-
The Curious Case of Equitas Small Finance Bank And A CEO Who Quit For Stock
PN Vasudevan believes persistent investor concerns over a perceived conflict of interest had become a governance overhang on Equitas Small Finance Bank's stock, even as the lender improved profitability and asset quality.
-
Talking Points This Week: AI Cash Burn, A Tiger Comeback And An India That Still Finds Its Own Path
India is not immune to higher oil or tighter global liquidity, yet its earnings base is broader, its domestic policy levers are still available.
-
Foreign Investors Own Half Of HDFC Bank and ICICI Bank. An LTCG Cut Could Matter Most Here
Foreign portfolio investors have US$115 billion parked in HDFC Bank, ICICI Bank. If the government cuts long-term capital gains tax, Jefferies says returning foreign money could land here first.
-
'Never Seen This Level Of Negativity': Sandeep Tandon Says The Next Rally May Be Closer Than You Think
Veteran investor Sandeep Tandon says foreign selling is easing, large-caps are due a comeback and mid-caps are crowded, while he turns positive on gold, power and pharma this Diwali.
-
Indians Stay With Family, Not In Hotels | The Reason Why
India still lacks enough clean, reliable and affordable hotels for budget-conscious travellers.
-
The Economic Imperative: Analysing The Material Driving Force Behind India-Canada Strategic Reset
This economic complementarity is further reinforced by deep institutional investment ties and talent mobility, which form the bedrock of the bilateral framework.
