Infosys and Wipro are leading the selloff in IT shares over concerns of risk to revenue growth as spending by US clients slows down due to global uncertainties.
International brokerage Morgan Stanley's latest note cited shifting global macroeconomic environment and technological changes as increasing risks for the tech sector, potentially putting valuations and revenue growth at risk.
The fall in the share prices pushed Nifty IT down nearly 2 percent in early trade to its lowest level since July 2024, with TCS, HCLTech, Infosys and Tech Mahindra emerging as top losers on Sensex. Nifty IT is down about 16% so far this year.
According to Morgan Stanley, the revenue growth and valuations in the IT sector face strong downside risks amid global uncertainties, prompting it to cut target prices for domestic IT majors.
The brokerage note downgraded Infosys to equal weight and cut target price to Rs 1,740 per share from the earlier Rs 2,150 per share. The stock is lower by nearly 4 percent to the lowest level in over eight months. The latest target, however, implies an upside potential of over 9 percent from the last closing price.
Infosys shares also received a downgrade from Motilal Oswal Financial Services, who rated the stock ‘Neutral’, adding that the sentiment has turned cautious, with businesses taking a
'wait-and-watch' stance, as tariff-related uncertainties play out. Motilal Oswal added that the outlook for discretionary spending by US clients has become more uncertain.
Morgan Stanley said it prefers the shares of TCS over Infosys, keeping an ‘Overweight’ rating but cutting target price to Rs 3,950 per share from earlier Rs 4,660 per share. The target price implies an upside potential of nearly 13 percent from the last closing price.
The brokerage has kept an 'Overweight' on Coforge while cutting target price to Rs 9,400 per share from Rs 11,500 per share. The stock was trading in the red with marginal losses in early trade. The latest target price implies an upside potential of nearly 24 percent from the last closing price.
Morgan Stanley added that it prefers Coforge over Mphasis, which is down nearly 2 percent in early trade.
For HCL Tech, Morgan Stanley kept equal weight while cutting the target price to Rs 1,600 per share from the earlier Rs 1,970 per share. The stock fell nearly 3 percent to trade at Rs 1,527 per share. The latest target price however implies an upside potential of nearly 5 percent.
The brokerage preferred Tech Mahindra over HCL Tech. Morgan Stanley kept an equal weight for TechM shares, while slashing the target price to Rs 1,550 per share, from the earlier Rs 1,750 per share. The stock was down over a percent to trade and the latest target price implies an upside potential of over 6 percent.
"Nifty IT has corrected by 13 percent in the past two months and stocks in our coverage are trading near, or below, their 5-year average P/E. We believe multiples should sustain at these levels," ICICI Securities said in its latest note.
Wipro shares too recorded strong losses, falling nearly 4 percent. L&T Tech Services and Persistent shares fell nearly 2 percent each to early trade.
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