Here's Why JP Morgan Downgraded Indian IT Sector To Underweight; Reiterated Overweight On Infosys

JP Morgan Chase & Co JPM analysts said that soaring inflation, supply chain issues, and the Ukraine war would bring an end to the growth boom India's IT services industry enjoyed during the pandemic.
The analysts downgraded the sector to "Underweight."
They downgraded Tata Consultancy Services Ltd, India's top IT exporter, to an "Underweight" rating from "Neutral" but stayed "Overweight" on rival Infosys Limited INFY.
JPM expected the slowdown to worsen in 2023 partly due to a potential decline in orders from the fundamental market of the U.S., whose economic growth had started to weaken.
While industry margins were likely to narrow due to a talent war that has pushed up costs of hiring and retaining employees, Infosys' margin reset is early. It gives it the bandwidth to invest and maintain growth.
JPM saw the peak revenue growth behind them and EBIT margins trending down from inflation, implying reversion.
While the bottom-up outlook remained positive from most Services, Software, and SaaS names YTD, and the tech spending cycle remained buoyant structurally, JPM felt more downside risks to current earnings assumptions.
The $194 billion sector whose software services helped businesses adopt pandemic-era online shopping practices and remote working is facing a demand slowdown this year as employees join back offices and the Ukraine war weighs on spending from clients in Europe.
Price Action: INFY shares closed lower by 0.43% at $18.70 on the last check Thursday.

Analyst Calendar