Goldman downgrades Infosys, TCS to 'sell' but upgrades one IT stock

Goldman Sachs has downgraded top Indian IT service providers Tata Consultancy Services (TCS) and Infosys to "sell," from "buy," citing a potential slowdown in dollar revenue growth in the face of impending macroeconomic stress.

Goldman however upgraded Wipro to "buy" from "sell," citing attractive valuations and a recent pickup in the company's order book.

Several top tier companies missed profit estimates in the April-June quarter due to higher costs.

Goldman said it remains "more sanguine" on the EBIT margin forecasts than on revenue of Indian IT companies, given multiple levers such as higher employee utilisation, controls on variable pay and annual wage hikes.

The Nifty IT index was down 3.1% on Wednesday as a surprise increase in US inflation stoked fears of aggressive rate hikes by the Federal Reserve.

The IT index has been one of the worst hit sectors, falling over 27% so far this year, underperforming benchmark Nifty 50 index, which is up 4%.

The IT firms made a windfall when pandemic struck the world couple of years back as several global corporations poured millions of dollars to rev up their digital infrastructure. IT stocks were outperformers last year.

India's top IT services firms have started freezing or cutting staff bonuses, worried that tightening budgets at US and European clients who are bracing for a recession will sharply hit their own profit as the pandemic-led boom fades out.

JP Morgan had recently downgraded its outlook on Indian IT sector to underweight.