IT stocks have experienced a fall since Tuesday, after the brokerage firm CLSA downgraded IT giants Tata Consultancy Services and HCL Technologies to sell from an ‘underperform’ rating, and reiterated the sell recommendation for both Wipro and LTIMindtree.
The brokerage stated that mid-single-digit revenue-growth guidance by HCL Technologies and Infosys in April 2024 would be a negative catalyst for TCS, HCL Technologies, and Wipro.
According to the analysts of CLSA, even though the 2024 growth outlook for the IT sector remains weak at best, it is not reflected in the valuations of these stocks.
On Tuesday, TCS, Wipro, and HCLTech experienced a 2% decline as CLSA downgraded these stocks. The downward trend persisted on Wednesday following the downgrade.
Midcap IT stocks, including Persistent Systems, Mphasis, and Coforge, were among the top losers that closed in the red on Tuesday and were down by almost 2.6 percent, 2.25 percent, and 1.9 percent, respectively.
Tata Consultancy Services (TCS)
The Hong Kong-based brokerage firm didn’t change its estimates, investment thesis or target price for the company, but downgraded TCS from ‘underperform’ to a ‘sell’ rating, as the brokerage firms believed that the valuation of the company has exceeded the fundamentals.
CLSA recommended a ‘sell’ call on TCS from an ‘underperform’ rating and maintained its target price at Rs. 3,925 per share.
With a market capitalisation of Rs. 14.51 lakh crores, the shares of Tata Consultancy Services Ltd. closed in red at Rs. 4,011.35 on March 5th, down by 1.72 percent. At 09:49 a.m. today, the shares of TCS were trading in the red at Rs. 3,989.8, down by 0.57 percent.
In the last one year, the company has delivered positive returns of about 18.95 percent and so far in 2024, it has delivered around 5.24 percent of positive returns.
HCL Technologies Limited
Though HCL is trading at an all-time high multiple, CLSA said that it could
normalise going into the weak seasonality of the Q4 FY23-24 and Q1 FY24-25, and any revival in a macro may not reflect in the company’s revenue growth.
Even with HCL, the global brokerage didn’t change its estimates, investment thesis, or target price for the company, but downgraded it from an ‘underperform’ to a ‘ sell’ rating, due to the expensive valuations.
The brokerage downgraded HCL to a ’ sell’ rating from ‘underperform’, but maintained the target price of Rs. 1,536 apiece.
On Wednesday,the shares of HCL Technologies were trading in the red at Rs. 1,621 down by 0.10 percent. CLSA expects the stock to correct on both an absolute and relative basis due to the weak seasonality.
The shares of HCL Technologies moved down by 0.15 percent and were trading in the red at Rs. 1,616.90, as of 09:51 a.m. today. In the last year, the company has delivered positive returns of about 43.55 percent, and as of now, in 2024, it has delivered around 9.01 percent of positive returns.
Wipro Limited
Wipro’s organic-growth prospects remain the weakest, which fails to reflect in current multiples, and the brokerage firm maintains a ‘ sell’ rating on the stock, according to CLSA.
The foreign brokerage firm has maintained a sell rating on Wipro with a target price of Rs. 441 per share. The closing price of Wipro on Tuesday was Rs. 512.95, a 1.45% decrease.
With a market cap of Rs. 2.68 lakh crore, On Wednesday, the shares of Wipro were trading in the red at Rs. 505.55, down by 1.51 percent.
In the last year, the company has delivered about 30.27 percent of positive returns and nearly 19.5 percent in the last six months. So far, in 2024, it has delivered positive returns of around 7.5 percent.
The 2024 growth outlook is not very different from the year 2023, for sectors such as banking, retail, and telecom, which are the key verticals for most of the IT companies in India.
Additionally, the growth guidance for the calendar year 2024 from the global IT service companies does not exude confidence, and the brokerage sees a further downside to its FY24-25 estimates for these companies.
Written by Shivani Singh
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