The Nifty IT index saw a 7% jump last week, fuelled by optimism about potential interest rate cuts in 2024, driving discretionary demand and large deals. However, despite these positive indicators, the immediate outlook for Indian IT companies is overshadowed by several challenges.

What Analysts Say: Analysts at Citi have reiterated their “sell” or “neutral” stance on all IT stocks within the Nifty50 pack. This cautious approach is influenced by the sector’s ongoing seasonally weak quarter and a notable lack of visibility regarding large projects.

Tata Consultancy Services

Citi has set a target price of ₹3,170 per share for TCS, considering the current market price of ₹3,860. Despite TCS securing substantial deals exceeding $10 billion in the past three quarters, clients are reassessing spending priorities, potentially mitigating the positive impact of these deals, the brokerage said.

The company is also facing the effects of normal seasonality in the third quarter, marked by furloughs and fewer working days due to the holiday season in the West.

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Infosys

Citi’s target for Infosys is ₹1,565 per share, almost in line with the current market price of ₹1,567. Clients in challenged verticals, including telecom, hi-tech, retail and financial services, are actively seeking cost optimization strategies.

Wipro

With a target of ₹360 per share, Citi’s assessment for Wipro is lower than the current market price of ₹446. Insights from a CFO meeting indicate that visibility for the December quarter has not significantly improved and discretionary spends are being curtailed, the analysts said.

Additionally, the expected replenishment of large transformational projects is not materialising, according to the brokerage.

Tech Mahindra

Citi’s target for Tech Mahindra is ₹1,000, which is below the current market price at ₹1,305. The company is strategically focusing on six regions, focusing on top accounts and planning for structured hiring, particularly in leadership roles, expected by January 2024.

HCL Tech

Citi’s target for HCL Tech is ₹1,295 per share versus the current market price of ₹1,483. Challenges arise due to the absence of a budget flush and increased furloughs compared to previous years, impacting demand predictability, the brokerage said.

Despite these challenges, the company maintains a low double-digit outlook for medium-term growth.

LTIMindtree

Citi’s target for LTIMindtree is ₹4,660 per share, while the current market price stands at ₹6,087.20. The management of LTIMindtree expressed cautiousness among clients, particularly regarding budget allocation, and the company is yet to witness a tangible impact on performance despite substantial investments by global capability centers, according to Citi.

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