Although the Indian information technology services sector has been an underperformer in the bull run seen in the market last year, foreign brokering firm JPMorgan has upgraded its stance on the IT sector to 'neutral' from its earlier bearish view.
The latest client note from JPMorgan comes ahead of the third quarter results of these IT companies. The brokerage has upgraded IT giants including Infosys, TCS, HCL Technologies, Mphasis, L&T Technology Services and Persistent Systems buoyed by expectations of a pivot on rate cuts by the US central bank and a favourable base.
Factoring in these expectations, JPMorgan has upgraded its recommendations for Infosys and L&T Technology Services to 'overweight' while others, TCS has been lifted to 'neutral' from 'underweight' earlier. TCS now has a target price of ₹3,700 from ₹2,900 earlier, while Infosys' target has been raised to ₹1,800 from ₹1,400 earlier.
| Companies | Rating | Target Price |
| Infosys | overweight | ₹1,800 |
| L&T Tech | overweight | ₹5,800 |
| TCS | neutral | ₹3,700 |
| HCL Tech | neutral | ₹1,520 |
| Mphasis | neutral | ₹2,700 |
| Persistent Systems | neutral | ₹7,000 |
The brokerage has upgraded HCL Technologies and Persistent Systems to a 'neutral' rating from 'underweight' earlier with a target price of ₹1,520 and ₹7,000, respectively.
L&T Technologies was also lifted to 'overweight' from 'underweight' stance earlier and the target price was raised to ₹5,800 from ₹3,200 earlier.
Mphasis was upgraded to 'neutral' from 'underweight' earlier and the target price was raised to ₹2,700 from ₹1,700 earlier.
The brokerage maintained an 'underweight' rating on Wipro, Tech Mahindra and LTIMindTree and raised the target price to ₹420, ₹1,150, and ₹5,500 respectively.
The brokerage banks on expectations of a pivot in rate cuts to cost-saving measures, pro-cyclicality, near-term generative artificial intelligence (Gen AI) prep work and a very low base of 2023 as major drivers behind the slew of upgrades.
Following the upgrades, shares of most IT companies opened higher on Thursday, lifting the Nifty IT index by around 1% higher.
In 2023, the IT sector was largely dragged by a weak macro environment due to prolonged deal conversions as business ramped down on IT spending.
In the December quarter, the IT companies are expected to report muted numbers due to the seasonality of fewer working days and higher furloughs. Brokerage firm Nuvama Institutional Equities expects revenue growth to be between -4% and 4% for most companies in the third quarter. Nuvama believes that lower discretionary tech spending, delay in the execution of deals and furloughs may weigh on the results.
However, the brokerage added that deal flow could remain stable, which should translate to a strong revenue recovery in coming quarters. Infosys and TCS are slated to report their third quarter results on January 11. HCL Technologies and Wipro will announce their results on January 12 and Tech Mahindra on January 24.
(Edited by : C H Unnikrishnan)
First Published: Jan 4, 2024 12:40 PM IST
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