Global brokerages Morgan Stanley and CLSA have provided fresh insights into the Indian IT sector, reflecting a cautious optimism peppered with sector-specific preferences and valuation perspectives. Their reports indicate nuanced views about growth potential, spending patterns, and strategic positioning across IT companies.
Morgan Stanley sees a slight improvement in revenue growth forecasts across the IT sector but maintains its core thesis that the next two years will likely witness muted revenue CAGR. The brokerage notes that the deal pipeline and management commentary continue to reflect weak discretionary spending and vendor consolidation opportunities. In light of this, Morgan Stanley advises that any rally in IT stocks should be used as a good opportunity to trim positions.
Among specific stock actions, Morgan Stanley has downgraded Tech Mahindra to an "Underweight" rating, assigning a target price of ₹1,575 per share. Conversely, it has upgraded Wipro to "Equal-Weight" and revised its target price upwards to ₹265 per share. Within large-cap IT companies, the brokerage prefers TCS, Infosys, and Wipro over HCLTech, LTIMindtree, and Tech Mahindra. For midcaps, it recommends Coforge and Mphasis over companies in the ER&D (Engineering, Research & Development) segment.
Meanwhile, CLSA has also highlighted that broader discretionary spending remains muted due to the uncertain macroeconomic environment. However, it notes that cost optimization and vendor consolidation themes have gained momentum. The BFSI (Banking, Financial Services, and Insurance) sector, a major contributor to global IT services spending, continues to show strong demand according to CLSA.
However, demand in most other industry verticals remains weak, especially in retail and auto. CLSA expects a V-shaped recovery in the coming quarters, stating that current valuations remain attractive for select players. Its top picks in the sector include Infosys, Tech Mahindra, and Persistent Systems. The firm advises a hold position only on LTIMindtree.
In summary, both brokerages share a common concern over muted discretionary IT spending but differ in their stock preferences. Morgan Stanley is more conservative, advising selective exposure and emphasizing trimming during rallies, while CLSA appears more hopeful of a recovery and is relatively bullish on select names. Investors may find value in following a stock-specific approach, balancing caution with long-term recovery expectations in the Indian IT space.
Disclaimer:This blog is for informational purposes only and does not constitute financial advice. The views and recommendations mentioned are based on publicly available brokerage reports and are not investment endorsements. Readers are advised to consult a certified financial advisor before making any investment decisions.
