IT stocks fall after UBS downgrades Infosys to 'sell'; Wipro, TCS down over 1%

NEW DELHI: Frontline IT stocks such as TCS, Wipro, and Infosys slipped in a rangebound market on Wednesday, after UBS in its latest report downgraded Infosys to "sell" from "buy" and has also slashed its target price to Rs 2,750 from Rs 4,050.

Reacting to the news, Infosys slipped nearly 2 per cent, TCS fell by 1.1 per cent and Wipro slipped as much as 2.3 per cent in trade on Wednesday.

At 11:00 a.m.; the BSE IT index was trading 0.9 per cent lower as compared to the BSE Sensex which was trading 0.26 per cent down.

Infosys was trading 1.8 per cent lower at Rs 3105. It hit a low of Rs 3102 and a high of Rs 3165 in trade today.

TCS was down 1.07 per cent to Rs 2175 and Wipro was trading 2 per cent lower at Rs 504.10.

The key assumptions for downside scenario for Infosys highlighted by UBS are: 1) slower than-expected revenue growth; 2) the company is unable to grow the infrastructure and BPO businesses; and 3) lower margins as a result of slower revenue growth. This scenario suggests negative earnings growth in FY16.

UBS is of the view that the stock will get de-rated in the next 12-18 months as the market begins to price in slowing earnings growth in FY16 and beyond.

NASSCOM expects the industry's export revenue to grow 13-15 per cent in FY15, up from 13 per cent in FY14. Over the past two years, the Indian rupee has depreciated more than 30 per cent against the US dollar, making Indian IT exports that much cheaper.

Experts say that one has to be selective in Indian IT space, because there are some companies which have been able to position themselves to benefit from the infrastructure management space whereas some of the other companies which are more application oriented are finding it difficult.

"We are not really comfortable with Infosys, data points are not great shape. The IT major will only be a market performer because if global IT will do very well, Infosys will also do equally well," said Sandeep Tandon, MD & CEO, Quant Broking.

"But, if we think that Infosys will outperform the IT index or the Nifty, then I don't think that will happen," he added.