Why are IT stocks down today? TCS, Infosys and LTM face broker downgrades
Nifty IT dips 1% intraday; brokerages flag pricing pressure and AI-led deflation concerns
IT stocks saw a decline on Friday as multiple downgrades impacted the sector. The Nifty IT index dropped 1 percent in the session, reaching an intraday low of 30,337, which marked a decline of over 3 percent on a weekly basis. Several IT companies, including LTM (LTIMindtree), Oracle Financial Services Software, HCL Technologies, Tech Mahindra, and Wipro, were trading in the red. However, TCS, Persistent Systems, Infosys, Mphasis, and Coforge exhibited resilience.
Kotak Institutional Equities downgraded TCS, Infosys, and LTM due to industry headwinds, client-specific issues, and concerns over near-term growth. Kotak also lowered Infosys to a "buy" from "add," lowering its target price to ₹1,200. They downgraded TCS to a "buy" with a revised target price of ₹2,450. LTM was downgraded to "sell" from "reduce," with a target price of ₹4,150, following a sharp rally in stock prices since the low point.
Kotak identified four themes driving the recent chain of events: high pricing pressure, reduced concerns regarding IT services' terminal value, the ongoing debate between open source and closed models, and challengers gaining market share.
CLSA also downgraded some larger IT names, citing a challenging operating environment and AI-led deflation weighing on legacy managed services. CLSA downgraded Infosys to "hold" from "outperform" and raised its target price to ₹1,147 from ₹1,109. They also cut TCS to "hold" from "outperform" and increased the target price to ₹2,326 from ₹2,165.
Tech Mahindra was downgraded to "hold" with a target price of ₹1,634. CLSA's more positive outlook is focused on mid-tier IT companies, which they believe are better positioned to benefit from significant shifts in technology spending and AI adoption. Persistent Systems retained a "high conviction outperform" rating, with its target price raised to ₹6,246 from ₹6,166.
Coforge also maintained a "high conviction outperform" rating, with a target price of ₹2,170. CLSA kept "outperform" ratings on LTM and Hexaware, raising their respective target prices to ₹5,534 and ₹730.
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