JPMorgan downgrades TCS and upgrades Mindtree; here's why

JPMorgan has downgraded Tata Consultancy Services (TCS) to neutral from overweight rating cutting the target price to Rs 3,800 per share. Mindtree, on the other hand, has been upgraded by JPMorgan to a neutral from underweight with a target price of Rs 3,900.

The IT sector has underperformed of late and it has been led lower by the global technology meltdown. If one looks year to date, while the Nifty is flat, the Nifty IT index is down close to about 11 percent.

Budget 2022 looks at 'sunrise sectors of growth', says Niti Aayog CEO Amitabh Kant

The fall has come in on account of the P/E de-rating. In other words, earlier the Nifty IT stocks were trading at a valuation premium to their historical averages and that valuation premium has come down in the recent fall.

Therefore, the reason why JPMorgan has downgraded TCS  is that TCS has outperformed and that outperformance perhaps is unwarranted. Looking at the year to date performance, TCS is flat while the rest of the pack has seen big falls closed about 10 to 20 percent.

On the other hand, the reason why Mindtree has gotten an upgrade is because of the kind of fall that the stock has seen. So Mindtree is down 18 percent on a year to date basis. So it's underperformed the Nifty IT and according to JPMorgan, perhaps the downside in Mindtree is now limited from these levels.