Tech Shares Hit Eight-Month Low as Morgan Stanley Warns of Growth Risks
Tech Shares :The Indian IT sector faced a sharp selloff as Infosys and Wipro led a broader decline in technology stocks. Concerns over slowing US client spending, coupled with a cautious outlook from international brokerage Morgan Stanley, triggered a near 2% drop in the Nifty IT index to its lowest level since July 2024. So far this year, the index has plunged about 16%, reflecting growing worries over the sector’s revenue growth and valuations.
Morgan Stanley’s Cautionary Note
Morgan Stanley’s latest research note highlighted two key risks affecting Indian IT companies:
- Global Macroeconomic Uncertainty – Slower economic growth, geopolitical tensions, and inflationary pressures have made US clients cautious about their discretionary IT spending.
- Technological Shifts – The rise of artificial intelligence and cloud-based services is forcing IT firms to adapt rapidly, making traditional revenue streams less reliable.
These factors have prompted Morgan Stanley to downgrade several IT stocks and cut their target prices, signaling downside risks to valuations.
Infosys and Wipro Lead the Decline
Infosys shares fell nearly 4% to an eight-month low after Morgan Stanley downgraded the stock from ‘Overweight’ to ‘Equal Weight’, slashing the target price from ₹2,150 to ₹1,740 per share. Despite the cut, the new target still suggests a potential 9% upside from the last closing price.
Another blow came from Motilal Oswal Financial Services, which also downgraded Infosys to ‘Neutral’. The firm pointed out that businesses are taking a ‘wait-and-watch’ approach due to tariff-related uncertainties, making the outlook for US discretionary spending uncertain.
Wipro also saw strong losses, dropping nearly 4%, as investors worried about its exposure to global IT demand slowdown.
TCS, HCLTech, and Tech Mahindra Follow the Downtrend
Other major IT stocks also suffered significant declines:
- TCS: Morgan Stanley still prefers TCS over Infosys, keeping an ‘Overweight’ rating but reducing its target price from ₹4,660 to ₹3,950 per share. This revised price still offers an upside potential of 13%.
- HCLTech: The brokerage lowered its target price to ₹1,600 per share from ₹1,970, maintaining an ‘Equal Weight’ rating. The stock fell nearly 3%, trading at ₹1,527 per share.
- Tech Mahindra: Kept at ‘Equal Weight’, but its target price was cut from ₹1,750 to ₹1,550 per share, with a potential 6% upside.
Coforge and Mphasis – A Mixed Picture
Morgan Stanley prefers Coforge over Mphasis due to its stronger business fundamentals.
- Coforge retained its ‘Overweight’ rating, though its target price was lowered to ₹9,400 per share from ₹11,500. The new target still implies a 24% upside.
- Mphasis saw a 2% dip in early trading as it remains under pressure from weak client demand.
Market Sentiment and Future Outlook
The overall sentiment in the IT sector remains cautious, as companies struggle with the impact of weaker global growth and shifting technology trends. Investors are closely watching upcoming earnings reports and management guidance to assess whether IT giants can navigate these challenges.
Morgan Stanley’s downgrade of Infosys and target price cuts for multiple IT stocks highlight the risk of earnings disappointments in the coming quarters. However, long-term investors may find selective opportunities, especially in TCS and Coforge, where upside potential remains significant.
Financial Ratios of Key IT Stocks
| Company | Target Price (₹) | Previous Target (₹) | Current Price (₹) | Upside Potential (%) | Brokerage Rating |
|---|---|---|---|---|---|
| Infosys | 1,740 | 2,150 | ~1,590 | 9% | Equal Weight |
| TCS | 3,950 | 4,660 | ~3,500 | 13% | Overweight |
| HCL Tech | 1,600 | 1,970 | ~1,527 | 5% | Equal Weight |
| Tech Mahindra | 1,550 | 1,750 | ~1,460 | 6% | Equal Weight |
| Coforge | 9,400 | 11,500 | ~7,600 | 24% | Overweight |
| Mphasis | N/A | N/A | ~2,200 | N/A | Neutral |
| Wipro | N/A | N/A | ~470 | N/A | Neutral |
Q&A Section
1. Why did IT shares fall to an eight-month low?
The decline was driven by Morgan Stanley’s cautious outlook, which highlighted global economic uncertainty and technological shifts as risks to revenue growth. Additionally, slower IT spending by US clients has weighed on valuations.
2. Which IT companies were most affected by the selloff?
Infosys and Wipro led the decline, followed by TCS, HCLTech, and Tech Mahindra.
3. What was Morgan Stanley’s rating on Infosys?
Morgan Stanley downgraded Infosys to ‘Equal Weight’ and cut its target price to ₹1,740 per share from ₹2,150.
4. Does Morgan Stanley still favor TCS over Infosys?
Yes, Morgan Stanley prefers TCS and maintained an ‘Overweight’ rating, though it reduced the target price from ₹4,660 to ₹3,950 per share.
5. Which IT stock has the highest upside potential?
Coforge offers the highest upside potential of 24%, according to Morgan Stanley’s revised target price.
6. How has Wipro performed in this downturn?
Wipro’s stock fell nearly 4%, reflecting concerns over global IT spending cuts.
7. What should investors look for next?
Investors should watch for Q1 earnings reports and management guidance, as these will provide more clarity on demand trends and future growth prospects.
For more market insights, follow our news.
Stay tuned for more updates and insights on the stock market! For more insights on investing in the Indian stock market, check out resource like MoneyControl, ET, NSE India.
Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Investors should conduct thorough research and consult with a qualified financial advisor before making any investment decisions.