Domestic brokerage firm JM Financial has revised its valuation multiples and trimmed target prices for several heavyweight Indian IT stocks, including Tata Consultancy Services Ltd (TCS), Infosys Ltd, and HCL Technologies Ltd. This comes amid ongoing selling pressure in the information technology sector, driven by concerns over artificial intelligence (AI) disrupting traditional tech models and expectations of slower revenue growth in the upcoming fiscal year.
Large-Cap IT Firms Face Downward Revisions
The brokerage noted a cautious sentiment among investors, stating, "Slower revenue growth in FY27 than expectation does not help investor sentiment - we stay cautious." Consequently, target multiples for several large-cap IT companies have been reduced, leading to significant adjustments in their respective target prices:
- Tata Consultancy Services (TCS): JM Financial maintained an 'Add' rating but trimmed the target price to Rs 2,555 from the previous Rs 2,730.
- Infosys: The firm kept a 'Buy' recommendation, revising the target price downwards to Rs 1,410 from Rs 1,500.
- HCL Technologies: HCL Tech continues to hold a 'Reduce' rating, with its target price cut to Rs 1,185.
- Tech Mahindra: The brokerage maintained an 'Add' rating, with a marginally lower target price of Rs 1,540 compared to Rs 1,555.
Mid-Tier Stocks Show Mixed Outlook
While large-cap firms saw general downward adjustments, JM Financial suggested that mid-tier IT companies might offer better performance, stating, "Mid-tiers likely to outperform large tiers – valuation gap has widened." The brokerage also highlighted a preference for stocks with clear growth visibility.
Notable updates for mid-cap and other IT players include:
- LTIMindtree Ltd: Rated 'Reduce', but its target price was slightly increased to Rs 4,255 from Rs 4,115.
- Coforge Ltd: Maintained an 'Add' rating with a significant target price increase to Rs 1,600 from Rs 1,330.
- Persistent Systems Ltd: Holds an 'Add' rating, with a slight target increase to Rs 5,660 from Rs 5,630.
- Mphasis Ltd: Kept a 'Buy' rating, with its target price edged up to Rs 2,740 from Rs 2,710.
- KPIT Technologies: Received a 'Buy' tag with an increased target price of Rs 860, up from Rs 840.
- Tata Technologies Ltd: Holds a 'Reduce' rating but saw its target rise to Rs 620 from Rs 570.
The report underscores a challenging environment for the IT sector, with AI and revenue growth expectations shaping analysts' outlooks and investment recommendations for the coming period.