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Print FormatHere's Why JP Morgan Downgraded Indian IT Sector To Underweight; Reiterated Overweight On Infosys
- JP Morgan Chase & Co NYSE:JPM analysts said that soaring inflation, supply chain issues, and the
Ukraine war would bring an end to the growth boomIndia 's IT services industry enjoyed during the pandemic. - The analysts downgraded the sector to "Underweight."
- They downgraded Tata Consultancy Services Ltd,
India 's top IT exporter, to an "Underweight" rating from "Neutral" but stayed "Overweight" on rival Infosys Limited NYSE:INFY. - JPM expected the slowdown to worsen in 2023 partly due to a potential decline in orders from the fundamental market of the U.S., whose economic growth had started to weaken.
- While industry margins were likely to narrow due to a talent war that has pushed up costs of hiring and retaining employees, Infosys' margin reset is early. It gives it the bandwidth to invest and maintain growth.
- JPM saw the peak revenue growth behind them and EBIT margins trending down from inflation, implying reversion.
- While the bottom-up outlook remained positive from most Services, Software, and SaaS names YTD, and the tech spending cycle remained buoyant structurally, JPM felt more downside risks to current earnings assumptions.
- The
$194 billion sector whose software services helped businesses adopt pandemic-era online shopping practices and remote working is facing a demand slowdown this year as employees join back offices and theUkraine war weighs on spending from clients inEurope . - Price Action: INFY shares closed lower by 0.43% at
$18.70 on the last check Thursday.
