MUMBAI: Morgan Stanley is recommending investors to stay selective in midcap information technology space amid high valuations.
The brokerage expects the revenue beat cycle to continue for select IT midcap stocks like and Mphasis, which it says will allow them to close the valuation gap with larger peers.
It has raised target price on Mindtree to Rs 3,450 from Rs 2,800, while maintaining an overweight stance. It has raised target price on Mphasis to Rs 3,150 from Rs 1,720 while also upgrading the rating to overweight from equal weight.
The brokerage has downgraded Larsen & Toubro Infotech to underweight from equal weight on account of limited large deal wins so far, margin headwinds in the near term and heady valuations.
Morgan Stanley has also downgraded Cyient to underweight as it believes FY21 revenue guidance appears stretched and could see a disappointment.
"With continuing supply side challenges impacting margins and strong outperformance in the recent past, we see risk reward for midcaps becoming less favourable relative to large caps," said Morgan Stanley.
"We are underweight stocks where earnings per share upgrades are unlikely and a lack of positive surprises on revenue/deal wins could drive valuation multiples further," the brokerage said.
The brokerage expects the revenue beat cycle to continue for select IT midcap stocks like and Mphasis, which it says will allow them to close the valuation gap with larger peers.
It has raised target price on Mindtree to Rs 3,450 from Rs 2,800, while maintaining an overweight stance. It has raised target price on Mphasis to Rs 3,150 from Rs 1,720 while also upgrading the rating to overweight from equal weight.
Did you Know?
Stock score of Larsen & Toubro Infotech Ltd moved up by 1 in a month on a 10-point scale.
View Latest Stock Report »The brokerage has downgraded Larsen & Toubro Infotech to underweight from equal weight on account of limited large deal wins so far, margin headwinds in the near term and heady valuations.
Morgan Stanley has also downgraded Cyient to underweight as it believes FY21 revenue guidance appears stretched and could see a disappointment.
"With continuing supply side challenges impacting margins and strong outperformance in the recent past, we see risk reward for midcaps becoming less favourable relative to large caps," said Morgan Stanley.
"We are underweight stocks where earnings per share upgrades are unlikely and a lack of positive surprises on revenue/deal wins could drive valuation multiples further," the brokerage said.
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