Ambit Capital has said that it is still not the right time to be positive about the Indian IT sector. In its latest report, the brokerage reduced its target prices for several IT companies by 7% to 21% and gave a “Sell” rating to most of them.
The firms with a “Sell” recommendation include major companies like Infosys, Tata Consultancy Services, Wipro, and Tech Mahindra, among others. This shows that the brokerage expects limited growth or possible downside in these stocks in the near future.
According to Ambit Capital, global technology sectors that are growing faster are available at similar or slightly higher valuations. Because of this, foreign investors may prefer those global companies instead of Indian IT firms. This could reduce demand for Indian IT stocks and put pressure on their prices whenever they try to rise.
The report also pointed out that even after a sharp correction of around 25% in the last three months, valuations of Indian IT companies are still not very attractive. Tier-1 IT companies are currently trading at about 17 times their expected earnings for the next year. This is close to pre-COVID levels and still about 30% higher than similar or better-growing global companies.
For Tier-2 IT companies, the situation looks even more expensive. These companies are trading at around 23 times forward earnings, which is about 35% higher than Tier-1 companies. This high valuation makes them less appealing to investors, especially when better growth opportunities are available globally.
Overall, Ambit Capital believes that Indian IT stocks may continue to face challenges in the near term due to high valuations and strong competition from global tech companies. The brokerage suggests that investors remain cautious and carefully evaluate their investments in this sector.