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Shares of leading software companies tanked by 2-5 per cent on the bourses today after Citi Research downgraded the Indian IT sector in a new report.
The sector has been de-rated to ‘Neutral’ from ‘Overweight’ as Citi Research believes that the Indian IT industry did not benefit as much as expected from the pick up in macro economic demand from developed economies.
The report also cites weakness in certain technology segments, instances of project cancellations, delay in ramp-ups, structural headwinds and apprehension surrounding emerging technologies such as cloud computing as key areas of concern for investors.
“Following strong outperformance (about 45 per cent outperformance in two years), relatively full valuations and multiple changes in the IT landscape, we are toning down our optimism,” Citi Research analysts Surendra Goyal and Rishi Iyer said in the report, a copy of which was seen by BusinessLine . As a result, the S&P BSE IT Index was down by 3.44 per cent to close at ₹10,434.56 today.
Bangalore-based Infosys, which is set to announce its second quarter earnings on October 10, saw the maximum selling activity on the bourses as its shares were re-rated to ‘Neutral’ from ‘Buy’ by the global investment company. Infosys’s shares were down by 4.7 per cent to close at ₹3,650.2 on the Bombay Stock Exchange.
“The company (Infosys) has done well on the cost initiatives and a new management team is in now in place — these positives are adequately discounted in the multiple and consistent pick-up may not be easy - post the re-rating, we downgrade to Neutral,” the report said.
Tech Mahindra and Mindtree have been downgraded to ‘Sell’ from ‘Neutral’ and ‘Buy’, respectively. While the Tech Mahindra scrip was down by 4.53 per cent to close at ₹2,397.85, shares of Mindtree closed 3.88 per cent lower to end the day at ₹1,062.15
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