Despite green shoot seen in the June quarter earnings, Indian IT heavyweights Wipro, Tech Mahindra, and LTIMindtree have landed on Moneycontrol's list of stocks that saw the most pessimism from analysts in August.
Wipro faced the maximum punches, receiving 24 'Sell' calls. Of the 43 brokerages covering the stock, 37 issued a 'Hold' or 'Sell' rating, while only six recommended a 'Buy.' Tech Mahindra wasn't far behind, with 27 out of 44 brokerages advising a 'Hold' or 'Sell.' Similarly, 24 of the 40 brokerages covering LTIMindtree issued a 'Hold' or 'Sell' stance.
While these stocks have got the most number of bearish calls, the overall outlook for the sector continues to remain weak. CLSA, in a recent report, reiterated its cautious outlook for the Indian IT sector, assigning an 'Underperform' rating to LTIMindtree. The firm noted that Indian IT's global market share has plateaued at around 16 percent, even as the Nifty IT was trading just 7 percent below its post-COVID peak valuations. CLSA forecasts a slowdown in growth for Indian IT, predicting high single-digit growth for FY26/27, compared to the mid-teens growth seen in FY22.
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Despite recording an increase in Q1 FY25 consolidated net profit, both Wipro and Tech Mahindra remain under a cloud of skepticism. Citi Research pointed out that Wipro's Q2 guidance was disappointing for investors, projecting a potential sequential revenue decline of 1 percent or slight growth of up to 1 percent in constant currency terms.
Tech Mahindra's earnings growth in Q1 FY25 hasn't allayed analysts' concerns either. Nomura and UBS flagged significant execution risks, especially with the company’s communication vertical struggling due to seasonal weaknesses in its Comviva business. Its operating margins also continue to lag behind peers, the brokerage said.
Pressure on Global Demand
Industry experts cite global demand softness as a persistent headwind for the IT sector, which heavily relies on international markets. Nirav Karkera, Head of Research at Fisdom, noted that while project wins remain steady, execution delays are a growing concern. "IT stocks are witnessing some value-based buying, but investors should focus on companies with shorter execution timelines," Karkera said. He emphasised large-cap and larger mid-cap IT stocks as preferable.
Also Read | CLSA finds valuation risks in Indian IT, JPMorgan sees BFSI driving growth
Despite these concerns, shares of Wipro, Tech Mahindra, and LTIMindtree have outperformed the Nifty 50 over the past month, rising 5-14 percent, while the index gained just 2 percent. As of 1:00 PM, shares of the three companies were trading 0.2-1.5 percent lower, driven by concerns about weaker US jobs data and potential rate cuts following the upcoming Federal Open Market Committee (FOMC) meeting on September 17-18. Given Indian IT companies' reliance on US outsourcing deals, the sector remains sensitive to fluctuations in the US economy.
Disclaimer: The views expressed by investment experts on Moneycontrol are their own and do not represent the website’s stance. Readers should seek advice from certified professionals before making investment decisions.
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