JP Morgan downgrades 4 large-cap Indian IT stocks including TCS and Wipro

Shares of Indian IT companies have underperformed the benchmark Nifty by 15 percent year-to-date (YTD) as earnings outlook has deteriorated during the current results season. Global brokerage JPMorgan sees more downside risk to the earnings assumptions and thus downgraded the IT sector and cut the target multiples by 10 to 20 percent across the board.

JPMorgan downgraded four stocks — Tata Consultancy Services (TCS), HCL Technologies, Wipro and L&T Technologies — to "underweight" from "neutral" today.

However, the brokerage is overweight on Infosys, Mphasis, Persistent Systems and Tech Mahindra, but have cut their target prices on all these stocks.

The brokerage expects margin headwinds to drive downgrades in quarter one and quarter two in the financial year 2023 and macro lead revenue downgrades in quarter three and quarter four.

This means that even the current multiples will not sustain for many of these companies and hence a sector downgrade to underweight, the brokerage said.

Meanwhile, last week staffing services experts indicated that the tech sector will continue to see high attrition for a few more months, with hiring demand to jump most for those with an experience of at least three years.

This means employees, especially in the IT sector still have more chips in hand and that could mean good pay hikes in the appraisal season too.