Kotak downgrades HCL Tech, Persistent Systems; Infosys remains its top pick; here's what the brokerage firm says

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HCL Technologies and Persistent Systems considering the recent rally in these stocks. The brokerage firm believes the recent strong rally limits further upside in select stocks in the IT sector. HCL Tech share price has gained nearly 11 per cent while Persistent Systems share price has gained over 9 per cent in December so far.

The Nifty IT and BSE IT indices have jumped about 8 per cent in December so far. On the other hand, Infosys remains its top pick among IT services companies under coverage. HCL Tech remains its next pick.

Cyient is the preferred pick in mid-tier IT stocks. Infosys share price has gained over 6 per cent in December so far. Kotak pointed out that the IT stocks have rallied 7-18 per cent in the past one month, especially during last week.

"While the Fed’s move warranted an upward movement in stock prices, the resulting rally was a tad optimistic, in our view. Our current revenue growth and EPS (earnings per share) estimates already factor in the positives for FY2025—(1) soft landing in the US, and (2) abating of demand headwinds," Kotak said. Also Read: Devyani International share price jumps nearly 8% on Thailand market entry "We increase fair values by 9-20 per cent on rollover and increase in multiples factoring in lower macro uncertainty.

The strong rally limits further upside in select stocks. We cut the rating on HCL Tech to an 'add' from a 'buy', following a 13 per cent stock price increase in the past month. We also cut the rating on Persistent to 'reduce' from an 'add'.