Goldman cuts Infosys, TCS to “sell” on looming slowdown

BENGALURU: Goldman Sachs downgraded top information technology service providers Tata Consultancy Services and Infosys to “sell,” from “buy,” citing a potential slowdown in dollar revenue growth in the face of impending macroeconomic stress.
“We believe a slowdown in discretionary IT services spend around the growth and transformation agenda will be quite material and something not yet completely reflected in the street’s double-digit revenue growth forecast for the industry for FY24,” Goldman analysts said in a note.
Goldman said it remains “more sanguine” on the EBIT margin forecasts than on the revenue of India IT companiesgiven multiple levers such as higher employee utilization, controls on variable pay and annual wage hikes.
India’s top IT services firms have started freezing or cutting staff bonuses, worried that tightening budgets at US and European clients who are bracing for a recession will sharply hit their own profits as the pandemic-led boom fades out.
The IT firms made a windfall when the pandemic struck the world a couple of years ago as several global corporations poured millions of dollars to rev up their digital infrastructure.
However, several top tier companies missed profit estimates in the April-June quarter due to higher costs.
Goldman upgraded Wipro to “buy” from “sell,” citing attractive valuations and a recent pickup in the company’s order book.
The Nifty IT index was down 3.1% on Wednesday as a surprise increase in US inflation stoked fears of aggressive rate hikes by the Federal Reserve.
The IT index has been one of the worst hit sectors, falling over 27% so far this year, underperforming the benchmark Nifty 50 index, which is up 4%.

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