Morgan Stanley remains cautious on IT stocks, sees higher risk for Tech Mahindra, TCS, and Mphasis

Global investment and consulting firm Morgan Stanley has articulated a cautious yet selectively optimistic stance on Indian IT stocks amid a challenging first quarter and a projected muted performance in the second quarter. While the bank advises investors to exercise selectivity and focus on the medium-term outlook due to relative valuation support, it underscores a potential cyclical pickup in the latter half of FY24 and FY25.

Morgan Stanley perceives the greatest risk to FY24 consensus estimates for Tech Mahindra, TCS, and Mphasis. The risks to FY24 consensus estimates are deemed relatively lower for HCL Technologies and LTIMindtree (LTIM). The investment bank's current preference leans towards large-cap stocks over mid-cap ones. Its preferred picks in this sector are Infosys, HCL, and LTIM. In its latest report, Morgan Stanley has revised its target price for several prominent IT stocks.

Morgan Stanley revises ratings for IT stocks

For Tata Consultancy Services (TCS), with a current market price (CMP) of Rs 3,258, Morgan Stanley maintains an 'Equal weight' position. However, the target price has been cut to Rs 3305 from Rs 3350 apiece.

Wipro (CMP: Rs 386) also remains 'Underweight' in Morgan Stanley's portfolio, with the target price cut to Rs 352 from Rs 365 per share.

Morgan Stanley maintains an 'Overweight' rating for Infosys (CMP: Rs 1299), although the target price is cut slightly to Rs 1440 from Rs 1475 per share.

HCL Technologies (CMP: Rs 1170) retains its 'Overweight' rating with the target price being raised to Rs 1260 from Rs 1160 per unit.

The brokerage downgraded Cyient (CMP: Rs 1466) to 'Equal weight' from 'Overweight', despite the target price being raised to Rs 1500 from Rs 1200. The brokerage downgraded that stock following strong outperformance and limited comfort with valuations.

For LTIMindtree (LTIM) (CMP: Rs 5000), Morgan Stanley maintains an 'Overweight' position, with the target price raised to Rs 5450 from Rs 5250.

Tata Elxsi (CMP: Rs 7730) remains 'Underweight', but the target price has been raised to Rs 5700 from Rs 5610.

Lastly, for Mphasis (CMP: Rs 1877), Morgan Stanley maintains an 'Equal weight' rating, although the target price is cut to Rs 1890 from Rs 1950.

The revised target prices indicate Morgan Stanley's cautious optimism about the Indian IT sector, with a selective approach being suggested for investment in the medium term.

Tata Consultancy Services Secures $1 Billion Deal with UK's Nest

Despite the less-than-favourable outlook from Morgran Stanley, TCS has secured a pivotal $1 billion deal from the UK's largest workplace pension scheme, the National Employment Savings Trust (Nest). This ten-year contract involves a digital transformation project aimed at enhancing Nest's administration services, a task previously held by French IT firm Atos. The deal marks TCS' fourth significant contract from the region in 2023, following agreements with Phoenix Group, Marks & Spencer, and the Teacher’s Pension Scheme in England and Wales. The extended partnership will see TCS use its BaNCS solutions to deliver personalised experiences to Nest's members and employers.