TCS, HCL, Infosys: Here’s why Morgan Stanley upgraded its target price for IT stocks

Morgan Stanley revised the target price for some information technology majors upward by 11-29 per cent, citing a lower probability of a bear case and increased long-term earnings. It also raised margin assumptions for engineering research and development (ER&D) names, while revenue growth assumptions remain largely unchanged, except for Wipro and Mphasis.

The global financial services firm has revised the target price of HCLTech to Rs 1,450 from Rs 1,200 earlier. It also upgrades the target price of Infosys (to Rs 1,640 from Rs 1,440), Wipro (to Rs 390 from Rs 352), L&T Technology Services (to Rs 4,000 from Rs 3,200), Mphasis (to Rs 2,700 from Rs 2,400) and Tata Consultancy Services (to Rs 3,730 from Rs 3,305).

The upgrade came at a time when the BSE IT index traded 13 per cent lower than the levels seen in December 2021. On the other hand, the benchmark BSE Sensex has gained 13 per cent during the same period.

Morgan Stanley expects the current price-to-earnings valuations, which are closer to the 5-year average, to sustain owing to double-digit EPS growth in FY25, under ownership by both domestic institutional investors (DII) and foreign institutional investors (FII) (although ownership is increasing).

“Within large-caps, we like HCLTech (mid-single-digit revenue growth in F24E with a resilient margin profile), followed by LTI Mindtree (room to surprise in the second half on both growth and margins) and Infosys (healthy order book to support FY25 outlook),” it said in a report adding it prefers Cyient (target price: Rs 2,000) with the midcap space.

Morgan Stanley maintained equal weight on TCS and Mphasis, owing to valuations. However, it downgraded Tech Mahindra to underweight, as it believes that the strong outperformance is behind us. “We see potential downside risk to EPS in Tech Mahindra. We also maintain an underweight stance on Tata Elxsi, L&T Technology and Services and Wipro,” Morgan Stanley said.

Also read: Stock recommendations by share market analysts for September 27, 2023: Granules India, Jubilant FoodWorks, JSW Energy & PNC Infratech

Also read: Top 6 stocks to watch on September 27, 2023: Muthoot Finance, Suzlon Energy, Vedanta, Talbros Automotive & others

Also read: Last day to subscribe to JSW Infrastructure IPO, PM Modi to launch projects worth Rs 5,200 crore in Top News on Sept 27: Share markets outlook, IRCTC’s offers on flight tickets, World Tourism Day