As investor interest in technology stocks has picked up over the past few weeks, the Nifty IT index has climbed by 4 percent in the last month. However, global brokerage firms CLSA and Morgan Stanley continued to caution that overall discretionary spending remains weak due to the uncertain macroeconomic environment.
CLSA observed that demand in many verticals—especially retail and auto—remains subdued. Morgan Stanley echoed this sentiment, noting that deal pipelines and management commentary confirm limited discretionary spending and weak opportunities for vendor consolidation.
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That said, CLSA highlighted that the banking, financial services, and insurance (BFSI) sector—the backbone of global IT services spending—still showed strong demand. The brokerage expects a V-shaped recovery in coming quarters and finds current valuations attractive.
CLSA's top stock picks in the sector include Infosys, Tech Mahindra, and Persistent Systems. It recommended holding LTIMindtree for now.
On the other hand, Morgan Stanley sees a slight improvement in revenue growth forecasts for the IT sector but believes any rally in stock prices should be used as a chance to trim positions.
Among large-cap names, Morgan Stanley prefers TCS, Infosys, and Wipro over HCLTech, LTIMindtree, and Tech Mahindra. In the mid-cap space, it favors Coforge and Mphasis over engineering and R&D-focused companies.
As for individual stocks, Morgan Stanley downgraded Tech Mahindra to “underweight” and set a target price of Rs 1,575. Meanwhile, it upgraded Wipro to “equal-weight,” raising the target price to Rs 265.
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