Brokerage firm JPMorgan is projecting downsides of anywhere between 13 to as much as 50 percent in stocks like Engineering Research & Development (ER&D) stocks like L&T Technology Services, Tata Elxsi, Persistent Systems and KPIT Tech. The brokerage is underweight on all four names.
JPMorgan noted that the contraction in the ER&D market has made the current valuations of IT services providers 'super rich' and that the slowdown in spending is not cyclical, but structural.
The brokerage observed that the IT firms are facing headwinds across industrial manufacturing, technology, media and telecom (TMT), and medical segments, while the automobile sector is the only silver lining.
The brokerage also lowered its compounded annual growth rate forecast for Indian IT services firms to 11 percent for the period of financial year 2023-2033, from its earlier expected CAGR of 14 percent.
Persistent Systems was JPMorgan's only overweight in the ER&D space but a substantial run-up in the stock at the start of the year, prompted a downgrade from the brokerage soon after as valuations were no longer cheap.
