Brokerage firm JPMorgan has turned bullish on select information technology stocks. It has upgraded Persistent Systems, LTIMindtree and KPIT Technologies and has taken an 'overweight' stance on Infosys and L&T Technology.
Shares of Persistent Systems were upgraded to 'overweight' from the earlier 'neutral' call, while its price target was raised to Rs 4,400 apiece. Both LTIMindtree and KPIT Tech received an upgrade to 'neutral' from the previous 'underweight' call with a target price of Rs 5,200 and Rs 1,400. JPMorgan also initiated coverage on Coforge with an 'overweight' tag, assigning the stock a price target of Rs 7,000.
As for the demand environment, JPMorgan believes that it has remained stagnant since reaching a bottom in the second half of CY23, with no noticeable improvement expected in either Q4FY24 or Q1FY25.
Likewise, the firm feels that this subdued demand is likely to lead to poor Q4 exit rates and could dampen the FY25 guidance across IT companies. According to the firm, the negative price action seen in Nifty IT index (down 1.3 percent year-to-date) suggests that these expectations are factored in.
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"Despite this, the market should overlook a soft Q4, as Infosys' FY25 revenue guidance of 2-4 percent and HCLTech's guidance of 4-6 percent might surprise investors positively," the firm added.
Going ahead, JPMorgan also anticipates an outperformance of midcaps over other large-scale IT firms, while ERPs (Enterprise Resource Planning solutions) likely to surpass traditional IT companies. "In a tactical move, portfolios focusing on non-discretionary sectors could outshine those with discretionary holdings," it said.
Adding a tint of positivity, the brokerage also forecast a potential recovery for IT stocks to gain momentum in the second half of CY24.
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