JP Morgan Maintains Neutral Stance on IT Sector Before Q3 Earnings

As the information technology sector braces for its upcoming earnings season, beginning January 11, JP Morgan, a towering figure in global brokerage, has issued a neutral outlook on the sector. This measured stance is influenced by five key factors. First, there's a noticeable shift towards cost-saving strategies among IT companies. Secondly, the negative impact from behind-the-curve industries is on the decline. Thirdly, the broker notes the presence of pro-cyclical trends. Fourthly, the industry is engaging in preliminary work for next-generation artificial intelligence. Lastly, IT firms are looking at a low comparison base in calendar year 2023.

The neutral position has been accompanied by alterations in individual stock ratings and upward revisions in target prices. Notably, Infosys jumped from 'neutral' to 'overweight' with a new target price (TP) set at Rs 1800 from Rs 1400. HCL Technologies and Tata Consultancy Services (TCS) moved from 'underweight' to 'neutral', with revised TPs of Rs 1520 and Rs 3700, respectively. LTI Mindtree retained its 'underweight' status, though its target price increased to Rs 5500. Mphasis shifted from 'Underweight' to 'Neutral' with a substantial TP boost to Rs 2700, while L&T Technology Services leaped from 'Underweight' to 'Overweight', seeing its TP revised to Rs 5800. On the other hand, Tech Mahindra and Tata Elxsi remain 'underweight', with new TPs of Rs 1150 and Rs 6200, respectively.

Prior to JP Morgan's assessment, Citigroup expressed a bearish stance on IT stocks, forecasting a modest 6 percent revenue growth in constant currency for FY25 compared to 2 percent for FY24 and 8 percent pre-pandemic. Additionally, Citigroup cautioned that valuations could still be vulnerable.

neutral, ratings, earnings