Indian IT stocks downgraded by 30%: Here's why
What's the story
Goldman Sachs, a leading global brokerage firm, has cut target prices for Indian IT stocks by 3%-32%.
The move comes on the back of projected lower revenue growth due to macroeconomic uncertainty in the US.
According to an ET report, the US accounts for about 60% of India's IT revenues.
The downgrade in GDP forecasts of the US economy and heightened risk of recession have led to this.
Stock evaluations
LTIMindtree downgraded to Neutral; TCS viewed favorably
Goldman Sachs has downgraded LTIMindtree from 'Buy' to 'Neutral.'
The firm cited "reduced near-term growth and margin visibility due to the company's higher discretionary exposure vs peers, premium valuations vs sector, and a more balanced risk-reward."
In contrast, Tata Consultancy Services (TCS) is seen better positioned than its competitors like Wipro and Tech Mahindra.
Goldman Sachs attributes this favorable view of TCS to its diversified revenue base, potential benefits from vendor consolidation, and "reasonably high margin visibility."
Market concerns
Analysts caution about potential challenges for IT sector
Goldman Sachs analysts have warned about potential challenges ahead for the IT sector.
They said, "The recovery in discretionary spending, which has remained muted for the last two years, could be delayed further on account of slower decision-making potentially translating into pauses/deferral of IT spending by enterprises."
The analysts also cautioned that a prolonged macroeconomic downturn could lead to "project re-scoping or cancelations," putting additional pressure on India's IT sector multiples.