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Goldman Downgrades Infosys, TCS, Tech Mahindra On High Valuation, Downcycle Ahead

Goldman Sachs analysts downgraded Tata Consultancy Services Ltd., Infosys Ltd. and Tech Mahindra Ltd. citing high valuations that do not take into account the coming downcycle.

However, the investment banking firm increased its rating on Wipro Ltd. largely because of “attractive valuations,” according to the Sept. 14 report.

During the pandemic, India’s IT sector has benefited from three secular tailwinds – outsourcing, offshoring and digitalization – due to accelerated cloud migration. The industry’s dollar revenue growth will slow significantly as a result, Goldman Sachs said, given the impending macro slowdown.

“We have lowered our forecast of revenue growth in dollar terms for the top five companies by 4 percentage points to an average of 6% year-on-year, compared to our previous forecast of 10%,” Goldman analysts Sumeet Jain and Mansi Mittal said in the report.

Shares of India’s Top 10 software service providers fell between 5% and 1.9%, led by Infosys and Tech Mahindra, in early trading on Wednesday. The NSE Nifty IT Index fell the most in nearly three weeks.

In vertical markets and geographies, Goldman Sachs expects a significant slowdown in telecoms, retail, materials and utilities, with the EU seeing a stronger slowdown than North America.

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