Infosys drops 5% on Citi downgrade

IT major downgraded Infosys to 'neutral' from 'buy' ahead of its result announcement citing limited upside

Shares of information technology firms fell sharply on Wednesday after an influential broking houses downgraded certain companies in the sector. Citibank downgraded Infosys to ‘neutral’ from ‘buy’ ahead of its result announcement, citing limited upside following recent gains. Shares of Infosys ended at Rs 3,650, down 4.7 per cent, the most since May this year.

The BSE IT index dropped 3.4 per cent even as the benchmark Sensex ended just 0.1 per cent lower. Citibank also downgraded Tech Mahindra and Mindtree to ‘sell’. Tech Mahindra fell 4.5 per cent, while Mindtree ended 3.88 per cent lower.  The brokerage said recent outperformance in Infosys shares have factored in positive management change and cost improvements at the company and “it sees risk of volatility ahead.”

It also said that Tech Mahindra’s valuation may not justify premium to HCL Technologies. Mindtree, Citi said, “remains the best-placed mid-cap – however, the sharp re-rating may be running ahead of fundamentals.”  

Market experts said investors will keenly observe Infosys result announcement due on Friday.  “We need to see how the company performs in the results,” said Shashi Bhusan, senior research analyst, Prabhudas Lilladher Securities, adding that prices could move up if the results beat expectations.

Deven Choksey, managing director, K R Choksey Securities said that the sell-off in IT stocks could be on the back of profit-taking after recent gains.

Other IT majors Wipro and TCS declined 4% and 2% respectively.