Buy TCS, LTIMindtree, Infosys; Sell Wipro, Tech Mahindra, says Goldman Sachs as it initiates coverage on 6 IT stocks

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Tata Consultancy Services (TCS), Infosys and LTIMindtree. It has a ‘Sell’ rating on Wipro and Tech Mahindra, while a ‘Neutral’ rating on HCL Technologies.

While revenue growth for IT companies is likely to stay muted near-term on the back of macro concerns, Goldman Sachs believes the market could be under appreciating the recovery and upside from FY25. “We forecast a 9-10% annual revenue growth for our India IT coverage from FY25, which is a c.2x multiplier of the 5% revenue growth for GS covered global companies in CY24.

While our overall sector revenue growth is in line with consensus, we see company specific divergence, and are ahead of consensus on Infosys and TCS," Goldman Sachs said in a note. The brokerage expects this growth to be aided by the pent-up demand, initial tailwinds from Generative AI, and continued shift to cloud and managed services.

It expects operating profit growth, at 12-15% over FY25-26E, to be faster than revenue growth, as it sees presence of multiple margin levers and forecast an expansion in margins for all the companies within its coverage. “While India IT is trading at premium valuations vs its last 10Y average (in line with last 5Y), we argue that higher multiples are warranted as we view growth in IT/Tech spends as an industry perennial with a lower susceptibility to disruptions, and shareholder payouts having meaningfully improved over the decade," it said.

Also Read: The Investing Opportunity in India's Chandrayaan Success Goldman Sachs sees TCS as a defensive play in a tough demand environment, and expects the company to be a beneficiary of vendor consolidation, given its in-depth vertical expertise, and wider geographical or portfolio presence. The brokerage has a Buy rating on TCS