IT stocks were among the biggest losers in the market sell-off on Thursday with the NSE IT index tumbling 5.7%.
“Rising margin headwinds in the near term and revenue headwinds in the medium term from a potential macro slowdown will mean that the sector’s earnings upgrade cycle is behind,” said JPMorgan in a note to clients. “We see peak revenue growth behind us and EBIT (Earnings Before Interest Taxes) margins trending down from inflation, mean reversion.”
The brokerage has cut its price targets on IT stocks between 10% and 21%
“While the bottom-up outlook remains positive from most Services, Software and SaaS names YTD, and the tech spending cycle remains buoyant structurally, we feel there are more downside risks to current earnings assumptions,” said JPMorgan.