HSBC downgrades TCS, HCL Tech to 'neutral'
HSBC Securities and Capital Markets on Thursday downgraded Tata Consultancy Services and HCL Technologies to "neutral" from "overweight," and said IT stocks were likely to remain lacklusture through the second quarter results season as discretionary spending had stayed weak.
October 04, 2012 / 14:00 IST
Moneycontrol Bureau
HSBC Securities and Capital Markets on Thursday downgraded Tata Consultancy Services and HCL Technologies to "neutral" from "overweight," and said IT stocks were likely to remain lacklusture through the second quarter results season as discretionary spending had stayed weak. "Stocks are already factoring in growth of 11-14% in FY14, which is a steep pick-up for Infosys and Wipro, and continuation of FY13 growth for TCS and HCL Tech. In that regard, we believe the potential upside to our estimates is limited. Further, the rupee appreciation may add headwinds to the already stressed margin outlook and could likely be a drag on earnings," analyst Yogesh Aggarwal said.He already has a "neutral" rating on Infosys and MindTree, but is still "overweight" on Wipro, Polaris and Persistent Systems.HSBC expects 0-4% volume growth for software service providers in the July-September quarter and feels margin pressures may persist as impact of wage hike fully flows through most of the companies."We believe that demand from banking and financial services clients, particularly in the US, has remained weak, although infrastructure management services projects remain abundant as customers look to restructure their IT infrastructure," Aggarwal said.HSBC has raised its target price on Infosys to Rs 2,695 from Rs 2,500, HCL Tech to Rs 610 from Rs 570, MindTree to Rs 700 from Rs 680 and its target on Persistent has been raised to Rs 500 from Rs 440. Its target price on TCS, Wipro and Polaris remains unchanged at Rs 1,405, Rs 420 and Rs 168 respectively.On Thursday morning, Infosys was down 0.6% at Rs 2,562.55, TCS slipped 0.5% at Rs 1,315.50, MindTree fell 2.1% at Rs 645.95 and HCL Tech was down 0.4% at Rs 589.05. Meanwhile, Persistent and Wipro gained 0.1% at Rs 441.30 and Rs 380.40 respectively and Polaris was up 0.8% at Rs 137 on NSE. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
