Information technology (IT) stocks came under heavy selling pressure on Friday after reports said Goldman Sachs has downgraded counters such as Tata Consultancy Services (TCS), Wipro, and Mphasis. The brokerage, as per reports, noted that the IT sector, as a whole, will face cyclical hiccup ahead and the current valuation of the sector is at premium to historical average.
That apart, news reports that US was planning tighter visa norms, too, hurt the investor sentiment.
At 10:19 am, Nifty IT index was trading over 2 per cent lower at 14,950 levels with all the 10 constituents in the red. Infosys (down nearly 4 per cent) was the biggest loser on the index followed by Tech Mahindra, HCL Tech and Hexaware. In comparison, the Nifty50 index was trading at 11,932 levels, down 36 points or 0.30 per cent.
The global brokerage firm has downgraded Wipro to 'Sell' from 'Neutral' while TCS has been downgraded to 'Neutral' from 'Buy' with the target price of Rs 2,105. Mphasis, too, has been downgraded to 'Neutral' from 'Buy' with the price target of Rs 924, as per reports. In its note, Goldman Sachs said cyclical slowdown weighs on structural drivers.
September quarter was a mixed bag for large-cap IT companies. While HCL Tech, Tech Mahindra and Infosys outperformed in revenue growth and margin, TCS missed estimates on both revenues and EBIT margin. Wipro, on the other hand, had a stable quarter.
"Infosys has seen a steep correction post the whistleblower issue and remains our top pick in large cap IT. We expect current uncertainty to fade off over next two months," analysts at Centrum Broking said in report dated November 19.
Thus far in the financial year 2019-20 (FY20), barring NIIT Tech, TCS, and HCL Tech, all the constituents of the Nifty IT pack have underperformed the benchmark index. While NIIT Tech has risen 13 per cent, TCS and HCL Tech have gained 6 per cent and 4.5 per cent, respectively. The Nifty50 index, on the other hand, has climbed nearly 3 per cent while Nifty IT index has slipped over 2 per cent during the window.