Goldman Sachs (GS) has revised its outlook on the Indian IT services sector, slashing its revenue growth forecast for FY26E to 4% YoY (constant currency)—a 230 basis point cut from its previous estimate. This adjustment reflects growing macroeconomic uncertainties, particularly in the United States, the largest market for Indian IT firms.
As part of this revision, Goldman Sachs has also adjusted its stock ratings and target prices (TP) for key Indian IT companies:
LTIMindtree: Downgraded to Neutral, with a target price cut to ₹4,500 from ₹6,570.
Tata Consultancy Services (TCS): BUY rating maintained, but TP lowered to ₹4,230 from ₹4,550.
Infosys: BUY rating maintained, but TP reduced to ₹1,790 from ₹2,100.
Wipro: SELL rating maintained, with TP at ₹256.
Why the Downgrade? US Economic Slowdown & Tariffs
Goldman Sachs’ cautious stance on the Indian IT sector stems from its downgraded US GDP growth forecast, now expected to be 1.7% in 2025, down from its earlier 2.4% projection at the beginning of the year. This cut is primarily due to the negative impact of tariffs, which have raised the 12-month recession probability in the US to 20% from 15%.
Given that the US contributes over 50% of revenues for most Indian IT firms, any slowdown in its economy directly affects IT spending, project allocations, and contract renewals.
Implications for Indian IT Stocks
1. Slower Revenue Growth for IT Companies
The expected 3.5% YoY growth in FY25E, followed by a marginally better 4% in FY26E, signals a prolonged period of weakness for the sector. Compared to the double-digit growth rates witnessed post-COVID, this slowdown could weigh on stock valuations.
2. Stock Performance May Remain Under Pressure
Despite TCS and Infosys maintaining their BUY ratings, the target price cuts indicate limited upside potential. On the other hand, Wipro continues to face underperformance risks, as reflected in its SELL rating.
3. LTIMindtree Takes the Biggest Hit
The downgrade of LTIMindtree to Neutral, with a steep 32% target price cut, signals that Goldman Sachs sees increasing challenges for the mid-cap IT space. Mid-sized IT firms may struggle more than their large-cap counterparts in securing new deals amid global uncertainties.
The IT sector has been a backbone of India’s stock market, but macroeconomic headwinds in the US are now posing serious challenges. Investors should remain cautious, as global demand weakness and slower GDP growth in the US may cap gains for Indian IT stocks in the near term.
Disclaimer
The information provided in this article is for informational purposes only and should not be considered financial or investment advice. Readers are advised to conduct their own research or consult with a financial advisor before making investment decisions. The views expressed in this article are based on publicly available reports and are subject to change based on market conditions.