Shares of IT firms have come under bear attack since January 20 this year. The correction comes after economic growth in the US is seen slowing down to around 2% mark or lower in 2025-2026, says Morgan Stanley. The prediction comes as the world finds itself stuck in the tariff war initiated by US President Donald Trump. Trump on January 20 started tariff war against its trading partners, which pulled the global markets lower in anticipation of adverse effect on international trade.
Indian IT companies, a majority of whom are exporters of their services to the US, also saw their shares plunging up to 23% since then.
IT stocks such as LTIMindtree Ltd (23%), TCS (14%), Infosys Ltd (12.74%), HCL Technologies (14.42%), Wipro (12%), Tech Mahindra (14.45%), Mphasis (20.72%) and Coforge (15.42%) have fallen since Trump announced first round of tariffs on January 20.
Nifty IT index slipped 14.3% and BSE IT index lost 15.29% in nearly two months as trading partners of the US announced tariffs in response to those announced by Trump.
Global brokerage Morgan Stanley said caps, LTIMindtree and TCS are its key picks. It believes that LTIMindtree is well positioned to see better than industry growth as sectors like BFSI are recovering, order book has seen an uptick in the recent past, headcount additions inspire confidence in the future pipeline and margin has troughed already.
"Further, we do see a potential positive outcome from the recent management changes (new CEO appointed) in the form of a push for better growth, and changes in organizational structure," said Morgan Stanley.It has downgraded Infosys to equal weight and prefers TCS to Infosys.
In the large cap space, Morgan Stanley has assigned an overweight call to TCS with a price target of Rs 3,950 and gave an equalweight rating to Infosys for a target of Rs 1,740 in a year.
Shares of IT major HCL Technologies received an equalweight rating with a price target of Rs 1,600. On the other hand, it has an underweight call on Wipro with a target of Rs 265.
Tech Mahindra received an equalweight call with a target of Rs 1,550 and LTIMindtree was assigned an overweight call for a target of Rs 5,800, according to Morgan Stanley.
In the IT services midcap space, L&T Technology Service got an equalweight call with a target of Rs 5,000 and equalweight call for Mphasis with a target of Rs 2,570. Coforge with an overweight call can be bought for a target of Rs 9,400. The brokerage is underweight on Cyient and Tata Elxsi with targets of Rs 5400 and Rs 1210, respectively. Commenting on the growth outlook of the Indian IT srvices company, Morgan Stanley said, "We expect revenue growth rates in F26/27 to recover from their low point in F24/25 helped partially by a recovery in Financial Services and hitech verticals. However, we think risks to growth have increased and we lower our growth forecasts across the board by 100-200bps for FY26-27."
It believes TCS and Infosys are likely to see a muted EBIT growth at a low to mid-single digit CAGR over the next two years in our bear case scenario.
"Our bear case now expects growth rates to be in line with or lower than FY24/25 trends, assuming macro volatility leads to a freeze in discretionary spending and cost take-out projects see heightened competitive intensity. This would also mean lower margins in the next two years," said Morgan Stanley.
Centrum Broking has also come out with price targets for these IT stocks in a year.
"In our coverage universe, our top picks in IT Services are Infosys followed by TCS in tier 1 category. While we prefer LTIMindtree and Coforge in tier 2 category," the brokerage said.
The brokerage assigned an Add call to TCS with a price target of Rs 4,589 and gave a buy rating to Infosys with a buy call for a target of Rs 2,218 in a year.
Shares of IT major HCL Technologies received an Add rating with a price target of Rs 2,076. On the other hand, it has a reduce call for Wipro with a target of Rs 291.
Tech Mahindra received an ADD call with a target of Rs 1,868 and LTIMindtree can be bought for a target of Rs 7,188, according to Centrum Broking.
L&T Technology Services got a reduce call with a target of Rs 5,050 and 'REDUCE' for Mphasis with a target of Rs 3071. Coforge can be bought for a target of Rs 10,540 and Happiest Minds stock can be added to the portfolio with a target of Rs 769.