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 factor in the upcoming downcycle.

The investment banking company, however, upgraded its rating on Wipro Ltd. largely on account of "attractive valuations", according to its Sept. 14 report.

During the pandemic, the Indian IT sector has benefitted from three secular tailwinds--outsourcing, offshoring and digitalisation--on the back of accelerated cloud migration. The sector's dollar revenue growth, according to Goldman Sachs, will start to materially slow down hereon given the upcoming macro slowdown.

"We cut our FY24E dollar revenue growth forecast for the top five firms by 4 percentage points to 6% YoY on average versus our earlier forecast of 10%," Goldman analysts Sumeet Jain and Mansi Mittal said in the report.

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