Kotak Equities downgrades HCL, Persistent Systems after 10% rally on Fed pivot
IT stocks HCL Technologies and Persistent Systems have received a downgrade by Kotak Institutional Equities as the brokerage sees limited upside in the two stocks going ahead.
Kotak cut the rating on HCL Technologies to an 'Add' from an earlier 'Buy' and also downgraded Persistent to 'Reduce' from an 'Add'. On Persistent, Kotak said that the stock is currently trading at 33X FY2026E EPS and is expensive after a 22% rally in the past three months.
«Rollover to December quarter and 2X increase in multiple factoring in lower macro uncertainty following rate cut path laid out by US Fed lead to 9-16% increase in FVs for IT stocks,» Kotak said in a note
Following the downgrade, HCL Tech shares fell 1.7% intraday while Persistent was down by 2% around 12 pm.
Selling pressure was prevalant in the entire Nifty IT index as all 10 stocks were trading in the red around this time. It was also the worst-performing sector today.
On December 13, the US Federal Reserve left policy rates unchanged at 5.25-5.50% hinting at the likelihood of three cuts of a quarter percentage points each, in 2024. The surprise move came after the Federal Open Market Committee (FOMC) noted recent indicators suggesting that growth of economic activity slowed from its strong pace in the third quarter.
Street welcomed this move with glee, hoping that Fed’s action will likely leave more money in the hands of US companies, allowing them for discretionary spending.
The Kotak report further said that the 7-18% rally in the past one month in IT stocks was more on optimism and less on substance.
«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 estimates
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