- Citi Research has no Buy ratings on any of the 11 India IT stocks it covers
- IT sector growth has been stuck at 2-3% for the past six quarters
- Relief rally in IT stocks is driven by low valuations, not fundamental change
Citi Research has no Buy rating across the 11 IT stocks covered by its India research team, according to Surendra Goyal, Head of India Research at Citi Research.
While IT stocks have rebounded from their lows, Goyal sees the move as largely a relief rally driven by low valuations, rather than a fundamental turnaround.
“This is more like a relief rally on low valuations, and it's a bit of what investors call the anti-AI trade,” Goyal said while talking to NDTV Profit on Thursday.
IT Growth Stuck At 2-3%
Goyal said the biggest concern is the industry's weak growth trajectory.
“If you look at this quarter we just went by, last six quarters, if I take my entire coverage, growth has been stuck in the 2-3% territory,” he said.
“Unless that inflects, I just can't see how somebody creates a lot of value.”
Citi sees no clear trigger for a meaningful growth inflection over the next 12-18 months, with AI-led productivity gains and rising competition continuing to weigh on the sector.
“GCCs are still taking away share,” Goyal said.
He added that some industry CEOs are already highlighting productivity gains of up to 60% over the next three to four years, adding to pressure on traditional IT services demand.
Valuations Cap Upside
Goyal also sees limited scope for valuation expansion while industry growth remains subdued.
“The industry growth automatically caps the multiples which any stock in that particular sector can trade at,” he said.
Even companies executing well do not offer attractive risk-reward at current valuations, according to Goyal.
“Some of the names which are executing well trade at very lofty valuations,” he said.
Citi is also cautious on inorganic growth, with Goyal warning that acquisitions do not always create value and that risks can emerge well after a deal is announced.
For now, Goyal remains unconvinced that the IT growth cycle is about to turn.
“You are stuck in that low-growth trajectory, and for any meaningful value creation, that has to change, which I just don't see happening at least anytime soon,” he said.
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