In a recent move, global brokerage firm CLSA has downgraded its ratings for two Indian IT giants, Tata Consultancy Services Ltd. (TCS) and HCL Technologies Ltd. (HCLTech), shifting them from “underperform” to “sell.” Additionally, CLSA has maintained its “Sell” recommendation for stocks like Wipro and LTIMindtree from the overall IT basket.
Despite the downgrade, CLSA has maintained its price targets for TCS and HCLTech at ₹3,925 and ₹1,536 respectively. The rationale behind CLSA’s decision lies in its assessment of the weak growth outlook for the year 2024, which it believes is not adequately reflected in the valuations of these companies.
The Nifty IT index has experienced a notable 23% surge since November 10, 2023, outperforming the Nifty 50 by 10 percentage points. This surge has been attributed to several factors, including the softening of US bond yields, positive demand commentary from hyper-scalers, and excitement surrounding generative Artificial Intelligence and the Nvidia rally.
However, CLSA remains cautious, highlighting that key sectors such as banking, retail, and telecom – pivotal for most Indian IT companies – are anticipated to have a similar outlook in 2024 as they did in 2023. This cautious stance underscores CLSA’s decision to downgrade the ratings of prominent IT players, signaling a prudent approach amid evolving market dynamics.