Shares of IT majors like Tata Consultancy Services (TCS) and HCL Tech were on the decline on Tuesday after a global brokerage said it was bearish on the sector, given weak growth expectations.

What Happened: IT stocks were feeling the heat after brokerage CLSA downgraded TCS and HCL, while reiterating its “sell” recommendation on Wipro and LTIMindtree.

Despite a weak growth outlook for 2024 in the sector, stock valuations do not adequately reflect this sentiment, according to CLSA analysts. The analysts added that there could be more downside risk to FY25 estimates.

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CLSA sees the damp top-down demand outlook for the IT services sector in 2024 resembles that of 2019, with global companies’ 2024 guidance lacking confidence.

The outlook for banking, retail and telecom in 2024 mirrored that of 2023, adding to the subdued sentiment, the brokerage said. CLSA analysts noted that growth guidance provided by HCL and Infosys could negatively impact TCS, HCL and Wipro.

The brokerage downgraded both TCS and HCL from “underperform” to “sell”. It maintained TCS’ target price at ₹3,925 and HCL’s at ₹1,536.

Price Action: TCS’ share price was down 1.98% at ₹3,999.75 while HCL dropped 1.34% to ₹1,616.05. Meanwhile, Infosys was down 1.85% at ₹1,606.85 and Wipro fell 0.77% to ₹516.50. The NIFTY IT Index was down 0.51%.

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