CLSA told investors to trim their holdings in Indian IT stocks after flagging weaker-than-expected earnings for the upcoming quarter, and the market reacted sharply.
CLSA’s warning and its reasoning
The brokerage said the Nifty IT index has recently outperformed the broader market, pushing valuations close to fair levels and limiting short‑term upside. It expects Q3 FY26 earnings to be soft, so it advised investors to reduce exposure.
How the major IT stocks moved
At 11 am on Monday, the Nifty IT index was down more than 1.6% to 37,698.95. The following stocks saw notable declines:
- Infosys, HCLTech and Wipro each fell over 2%.
- Persistent Systems slipped about 2%.
- Tech Mahindra and TCS dropped more than 1%.
- Mphasis and Coforge had small losses.
- LTIMindtree was the only one to rise modestly.
Rating changes and preferred picks
CLSA downgraded HCLTech to “Hold” from “Outperform” and cut Tech Mahindra to “Outperform” from “High Conviction Outperform”. It also removed Tech Mahindra from its focus list because its revenue recovery has lagged behind expectations.
Despite the pullback, the broker still likes mid‑cap names Persistent Systems and Coforge, and keeps Infosys and Tech Mahindra as its top large‑cap choices.
What investors might consider
With valuations tightening, investors may want to review exposure to stocks that are trading at a premium, such as HCLTech, which is about 5% higher than peers like TCS and Infosys. Keeping an eye on earnings reports later this month will be key.
Remember, this is perspective, not a prediction. Do your own research before making any investment decisions.