IT crash ahead? CLSA downgrades TCS, Infosys, Wipro, other stocks; revises target prices. Here’s why

While AI jitters continue to keep IT investors on edge, CLSA downgraded several heavyweight stocks and revised their target prices, although it remains bullish on several mid-tier IT vendors.

CLSA, in its latest note, highlighted that Q1 earnings were a mixed bag for Indian IT and global peers. Basic Excel math does imply that AI volumes could supersede deflation by FY30, taking USD revenue growth from low to mid-single digits, the international brokerage said.

Given long gestation time and limited potential upsides, CLSA downgraded its rating on the shares of Tata Consultancy Services (TCS), Infosys and Tech Mahindra to ‘Hold’, and that on Wipro and Mphasis to ‘Underperform’, due to structural concerns.

CLSA revises target prices for TCS, Infosys

For Infosys, CLSA however hiked its target price to Rs 1,147 apiece from Rs 1,109 apiece. The latest target price implies around 3% upside potential from the heavyweight IT stock’s previous closing price of Rs 1,115 apiece.
It also hiked target price for TCS to Rs 2,326 apiece from Rs 2,165 apiece, implying 2% upside potential, while it reiterated a target price of Rs 1,634 per share for Tech Mahindra, implying 3% upside potential.

CLSA sees 15% downside potential in Wipro shares

Wipro shares however faced a target price cut along with the rating downgrade to ‘Underperform’, with CLSA reducing its forecast to Rs 152 apiece from Rs 157 apiece. The latest target price implies 15% downside potential from the stock’s previous closing price of Rs 178 apiece.
CLSA meanwhile has a target price of Rs 2,113 apiece for the shares of Mphasis, implying over 13% downside potential.The international brokerage however sees mid-tier IT vendors in a better position to take advantage of these tectonic changes, with good quality management teams and execution. Hence, it reiterated its ‘High Conviction Outperform’ rating on Coforge and Persistent Systems. It also reiterated its ‘Outperform’ rating on LTI Mindtree and Hexaware Technologies.

Also read | Is market heading towards a big AI crash like the dot-com crisis? Here’s what European Central Bank predicts

How did IT stocks react?

IT stocks however bucked worries to snap a losing streak and trade in the green, despite an overall muted market sentiment favouring the bears. Nifty IT gained over 1% to cross 30,560 on Wednesday morning to emerge as the top sectoral gainer.

Coforge, Persistent Systems and HCL Tech shares jumped around 2% to lead gains, while LTI Mindtree, Infosys, and Wipro shares gained around 1% each. Mphasis, Tech Mahindra and TCS shares traded in the green with marginal gains.

IT stocks have seen sharp upswings and downswings recently. Earlier this year, the sector witnessed a sharp selloff after breakthroughs by AI startups fuelled concerns about potential disruption to the traditional IT services business model. Later, a sharp selloff in global tech leaders proved to be a blessing in disguise for Indian IT stocks, which emerged resilient amid the global tech rout.

Also read | Sensex falls 100 points, Nifty below 23,150 as market bleeds for 7th session. What lies ahead?

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)