NEW DELHI — Indian IT stocks remained in focus on Friday as multiple broker downgrades weighed on the broader sector. The Nifty IT index dipped 1 per cent in the session to an intraday low of 30,337 compared to Thursday's close, and recorded a decline of over 3 per cent on a weekly basis from 31,357.75 on August 14.
During the trading session, LTIMindtree (LTM), Oracle Financial Services Software, HCL Technologies, Tech Mahindra, and Wipro traded in the red. Meanwhile, TCS, Persistent Systems, Infosys, Mphasis, and Coforge showed resilience.
Kotak Institutional Equities downgraded TCS, Infosys, and LTM, citing industry headwinds, client-specific issues, and concerns over near-term growth. Kotak downgraded Infosys to 'add' from 'buy' with a target price of ₹1,200, and downgraded TCS to 'add' from 'buy' with a target price of ₹2,450. LTM was downgraded to 'sell' from 'reduce' with a target price of ₹4,150, following a sharp rally in its stock price from recent lows.
The brokerage outlined four key themes emerging from recent market events: high pricing pressure as current deals remain insufficient to support growth aspirations for all players, reduced concerns regarding the terminal value of IT services providing a floor to valuations, a continuing debate between open source and closed models—with open-weight models raising service intensity and driving faster adoption and deflation—and challengers continuing to gain wallet share. Kotak’s preferred picks in the sector include Tech Mahindra, Coforge, Hexaware, and Indegene.
In a similar move, CLSA downgraded several larger IT names, pointing to a difficult operating environment as artificial intelligence-led deflation weighs on legacy managed services alongside ongoing macroeconomic headwinds that cloud technology spending.
CLSA downgraded Infosys to 'hold' from 'outperform' while raising its target price to ₹1,147 from ₹1,109. TCS was also cut to 'hold' from 'outperform' with its target price raised to ₹2,326 from ₹2,165, and Tech Mahindra was downgraded to 'hold' with a target price of ₹1,634.
However, CLSA maintained a more constructive view on mid-tier IT companies, which it believes are better positioned to benefit from major shifts in technology spending and AI adoption. Persistent Systems remained a high conviction 'outperform' with its target price raised to ₹6,246 from ₹6,166, and Coforge retained a high conviction 'outperform' rating with a target price of ₹2,170. CLSA also maintained 'outperform' ratings on LTM and Hexaware, raising their target prices to ₹5,534 and ₹730 respectively.
"The recent broker downgrades reflect a transitional phase for the Indian IT sector, driven by pricing pressures and technological shifts like AI-led deflation. While large-cap companies face near-term growth headwinds, market observers are increasingly focusing on mid-tier firms that appear agile enough to capture new opportunities in technology spending. For investors and industry stakeholders, this highlights the critical need to adapt service delivery models rapidly in response to evolving enterprise demands." — Dr. Shishir Gupta, Founder & CEO, StartupLanes
