Infosys, TCS, LTM shares get another downgrade; Find out why Kotak is cautious

Kotak Institutional Equities has downgraded both Infosys and TCS to “Add” from its earlier rating of “buy”, while LTM has been downgraded to “sell” from the earlier rating of “reduce”. The brokerage has cited a sharp rally in stock prices from recent lows as a key factor behind the downgrade.

While price targets on Infosys and TCS have been left unchanged at ₹1,200 and ₹2,450 respectively, LTM’s price target has been raised marginally to ₹4,150 from ₹3,900 earlier.

Kotak Institutional Equities in its note has highlighted four themes that have emerged from the recent change of events:First, pricing pressure remains high as deals are insufficient to support growth aspirations of the Indian IT companies.

Second, the concerns pertaining to the terminal value of Indian IT Services has reduced, and this, according to Kotak, will provide a floor to the valuations of these companies.

Third, the debate between open source and closed models continues where open weight models are not only raising the services intensity but also lead to faster adoption and drive deflation.

and the last being that challengers to these will continue to gain market share, the brokerage noted, highlighting Tech Mahindra, Coforge, Hexaware Technologies and Indegene as their preferred picks within this space.

For Infosys, Kotak Institutional Equities noted that it is at a slight disadvantage in the current phase of enterprise AI adoption due to a marginally higher exposure towards application services. The brokerage has warned that it is set to underperform on organic growth compared to TCS, HCLTech and Cognizant in financial year 2027.

TCS faces the highest challenge dealing with the AI-led deflation in its base business, according to the Kotak note, with the inorganic strategy starting off with a couple of “unexciting acquisitions”. Although the data center play is interesting, it is still in the initial stage, Kotak added.

The brokerage wrote further that LTM’s growth rate has fallen short of expectations and execution strength has not been sufficient to pull away from the gravity of industry headwinds and client-specific issues.

Shares of LTM are trading 2.5% lower on Friday at ₹4,436.2. The stock is flat so far this year.

Shares of Infosys are down 0.6% at ₹1,122.6, while those of TCS are trading 1.1% lower at ₹2,271.8.