&w=3840&q=100)
'Not a buying moment': Analysts wary of IT stocks amid Moody's US downgrade
Moody's downgrades US rating: Analysts see IT sector taking longer-than-expected to yield returns. Investors, they believe, should brace for near-term pressure
New Delhi
IT stocks to buy/sell: Investors holding information technology (IT) stocks in their portfolios seem to be stuck at crossroads. While US President Donald Trump's 90-day tariff pause and hard negotiations to strike deals with various countries, including India and China, lifted sentiment, Moody's downgrade of the economy's credit ratings has clouded the outlook.
Moody's downgrades US ratings
On May 16, Moody's Ratings downgraded the US' long-term issuer and senior unsecured ratings by one notch to 'Aa1' from 'Aaa'. This ended the US' top-tier sovereign credit status as the agency saw the States grappling with sustained fiscal deterioration, rising debt levels, and growing interest burdens.
Analysts said Moody's downgrade of US' credit ratings, which follows similar actions by Fitch and S&P, hint at tighter government spending and potentially reduced discretionary IT budgets.
"Given that there is a direct correlation between the US' GDP growth and tech spending by corporates, the prospects of IT companies look rather dim in the near-term. The single digit revenue growth rates of IT companies do not warrant their expensive valuations," cautioned VK Vijayakumar, chief investment strategist at Geojit Investments.
Going ahead, analysts see near-term pressure on IT stocks amid rising sectoral headwinds and expensive valuations. Long-term investors, they added, should wait for further correction in IT stock to enter the pack.
"This is not a broad-based 'buy-the-sector' moment. While the sector has underperformed, valuations are not uniformly cheap yet, and earnings downgrades are still trickling in for financial year 2025-26 (FY26). Patience will be key," said Sonam Srivastava, founder and fund manager at Wright Research.
So far in calendar year 2025, Nifty IT stocks have tumbled between 7.6 per cent and 34 per cent on the National Stock Exchange, dragged by Oracle Financial Services, Wipro, Infosys, Coforge, Tata Consultancy Services (TCS), and HCL Tech.
Valuation-wise, the Nifty IT index is trading at a price-to-earnings (P/E) multiple of 29.1 times as against its 5-year average of 29.3x. Among individual stocks, Coforge is at 67.5x vs 44.3x, HCL Tech at 25.8x vs 22.7x, and Tech M at 36.7x vs 28.5x, Bloomberg data shows. ALSO READ | Pharma shares in focus; GSK, Jubilant, Eris, Gland, Torrent rally up to 8%
Should you buy IT stocks?
According to analysts, while deal conversion cycles have elongated, especially for discretionary and transformation-driven project, US' push to de-risk China and strengthen trade ties with like-minded economies, including India, creates a structural tailwind for Indian IT over the medium-term, particularly for firms aligned with digital infrastructure, artificial intelligence (AI), and cybersecurity.
Investment strategy for IT stocks, Sonam Srivastava of Wright Research said, should be to focus on selective accumulation.
"Investors should emphasize companies with annuity-heavy revenue, exposure to cost-takeout deals, and strong positioning in AI/cloud. The sector could see tailwinds later in FY26 as global tech spends bottom out and trade realignments play out in India's favor," she said, adding that large-cap players with resilient deal pipelines and cost optimisation tailwinds, like Infosys and TCS, offer relative safety.
Echoing similar views, Apurva Sheth, head of market perspectives and research at SAMCO Securities, said the US efforts to secure trade deals and stabilise inflation offer long-term tailwinds.
"As GenAI adoption, cost takeout deals, and cloud modernisation remain strong themes investors should focus on tier-I names like Infosys, TCS, and HCL Tech, while staying selective on midcaps," he suggested.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Economic Times
an hour ago
- Economic Times
De Beers draws interest from billionaire Agarwal, Qatari funds, sources say
Live Events (You can now subscribe to our (You can now subscribe to our Economic Times WhatsApp channel Diamond giant De Beers has drawn interest from at least six consortia, including billionaire Anil Agarwal , Indian diamond firms and Qatari investment funds, sources close to the companies told Beers is being carved out of Anglo American as the London-listed miner refocuses on copper and iron ore but the move comes with global diamond prices under chairman of Vedanta Resources , which has mines in Zambia and South Africa, is among the interested parties, as part of a bigger group, two sources and Agarwal both declined to companies including KGK Group and Kapu Gems, which dominate the domestic cutting and polishing trade, and are De Beers's biggest customers, have also expressed an interest, two sources with knowledge of the matter Group and Kapu Gems did not respond to requests for American, whose book value for De Beers stands at $4.9 billion, following $3.5 billion in impairments over the last two years, said it has retained financial advisers Morgan Stanley, Goldman Sachs and Centerview to help with a sale or a demerger and potential listing.
India Today
an hour ago
- India Today
US suspends nuclear equipment exports to China amid escalating trade war: Report
The US in recent days suspended licenses for nuclear equipment suppliers to sell to China's power plants, according to four people familiar with the matter, as the two countries engage in a damaging trade suspensions were issued by the US Department of Commerce, the people said, and affect export licenses for parts and equipment used with nuclear power equipment suppliers are among a wide range of companies whose sales have been restricted over the past two weeks as the US-China trade war shifted from negotiating tariffs to throttling each other's supply chains. It is unclear whether a Thursday call between US President Donald Trump and Chinese President Xi Jinping would affect the suspensions. The US and China agreed on May 12 to roll back triple digit, tit-for-tat tariffs for 90 days, but the truce between the two biggest economies quickly went south, with the US claiming China reneged on terms related to rare earth elements, and China accusing the US of "abusing export control measures" by warning that using Huawei Ascend AI chips anywhere in the world violated US export controls. After Thursday's call, further talks on key issues were US Department of Commerce did not respond to a request for comment on the nuclear equipment restrictions. On May 28, a spokesperson said the department was reviewing exports of strategic significance to China."In some cases, Commerce has suspended existing export licenses or imposed additional license requirements while the review is pending," the spokesperson said in a statement. The Chinese Embassy in Washington did not immediately respond to a request for nuclear equipment suppliers include Westinghouse and Emerson EMR.N. Westinghouse, whose technology is used in over 400 nuclear reactors around the world, and Emerson, which provides measurement and other tools for the nuclear industry, did not respond to requests for suspensions affect business worth hundreds of millions of dollars, two of the sources also coincide with Chinese restrictions on critical metals threatening supply chains for manufacturers worldwide, especially America's Big Three could not determine whether the new restrictions were tied to the trade war, or if and how quickly they might be reinstated. Department of Commerce export licenses typically run for four years and include authorized quantities and many new restrictions on exports to China have been imposed in the last two weeks, according to sources, and include license requirements for a hydraulic fluids supplier for sales to license suspensions went to GE Aerospace for jet engines for China's COMAC aircraft, sources U.S. also now requires licenses to ship ethane to China, as Reuters reported first last week. Houston-based Enterprise Product Partners EPD.N said Wednesday that its emergency requests to complete three proposed cargoes of ethane to China, totaling some 2.2 million barrels, had not been said a May 23 requirement for a license to sell butane to China, in addition to the ethane, was subsequently withdrawn. Dallas-based Energy Transfer said it was notified on Tuesday about the new ethane licensing requirement, and planned to apply and file for an emergency sectors that have been hit with new restrictions include companies that sell electronic design automation software such as Cadence Design Systems CDNS.O.
Mint
an hour ago
- Mint
Court Fight Over Trump Ending Tariff Exemption Goes Forward
A court fight over President Donald Trump's decision to end a US policy that exempted small-value packages from China from tariffs is moving ahead over the administration's opposition. A federal judge on Thursday denied the US Justice Department's request to pause litigation over what's known as the 'de minimis' tariff exception while a broader fight over Trump's move to raise global tariffs on imported goods is pending. Amid that fight, the president's tariffs remain in effect. Packages coming into the US have qualified for the exception if they have a retail value of $800 or less. Trump's move to end the exemption for China and Hong Kong is hurting discount Chinese marketplaces such as Temu and Shein Group Ltd. that ship low-cost clothing, household goods and other items directly to US consumers. But it could also hurt US small businesses. QuickTake: What's the De Minimis Tariff Loophole Trump Closed? In the case at hand, auto parts distributor Detroit Axle argued that it has separate claims against Trump's revoking the exemption that aren't on the table in other active cases. The company says it will be forced to fire hundreds of workers and potentially shut down by the end of June if it can't get a final court ruling soon. The Justice Department argued that Detroit Axle was 'hard-pressed' to demand urgency since it didn't sue right away over the challenged executive orders and that it would make more sense for the court to wait for other lawsuits to be resolved before deciding next steps in the retailer's case. Detroit Axle's lawyers and a Justice Department spokesperson didn't immediately respond to requests for comment on Thursday's ruling. The case raises some of the same claims broadly contesting Trump's tariff hikes, but Detroit Axle's lawyers said they're pushing for faster court action only on the small-value import exemption. The company contends that the administration exceeded its authority and failed to go through the administrative rule-making process required under US law. The administration hasn't filed its response to Detroit Axle's claims yet but in other cases has defended Trump's use of executive power to carry out his trade policies. Trump has separately taken steps to end the de minimis exemptions for certain imports from other countries, but that hasn't taken effect yet. Late last month a federal appeals court temporarily allowed Trump's global 'reciprocal' tariffs to take effect, pausing a ruling by the US Court of International Trade that struck down Trump's use of an economic emergency law to impose the levies, currently at 10% for most major trading partners. The Court of International Trade ordered briefing to wrap up in early July on Detroit Axle's request to reinstate the de minimis exception. That would mean the court is poised to rule after the company says it would exhaust its pre-tariff stockpile and face dire financial consequences. On Friday, Detroit Axle asked the court to set a faster schedule. Meanwhile the appeals court is set to rule as early as next week on whether to give the administration a longer-term win and keep the lower court's judgment blocking the tariffs on hold while the legal fight plays out. The case is Axle of Dearborn v. Department of Commerce, 25-cv-91, US Court of International Trade. This article was generated from an automated news agency feed without modifications to text.
