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At their day’s lows, TCS fell over 3 per cent to Rs 2,482.65 while Tech Mahindra declined 1.6 per cent and Infosys slipped 2.9 per cent.
Global brokerage Bank of America Merrill Lynch has downgraded TCS to “underperform” from “buy”, citing the Indian outsourcer’s exposure to the financial services sector in the European Union.
Bank of America Merrill Lynch cut its target share price for TCS to Rs 2,450/share from Rs 2,750. The brokerage said that TCS could see a sharper near-term correction in its valuation as compared to its peers.
Overall, for the Indian IT sector, Bank of America Merrill Lynch sees the earnings of Indian outsourcers to get impacted due to Brexit. The possible growth slowdown in the UK from Brexit effects is likely to impact the volumes of Indian outsourcers, the global brokerage said.
Among the frontline Indian IT companies, TCS derives 14 per cent of its revenue in pound sterling. HCL Tech, Wipro and Tech Mahindra have 12-13 per cent exposure in pound while Infosys at 6.6 per cent.
Bank of America Merrill Lynch said that the depreciation of pound in the wake of Brexit would hurt the dollar revenue of Indian outsourcers when their pound earnings are translated into dollar. However, Bank of America Merrill Lynch said that US dollar’s appreciation against other major currencies could partially offset the impact from weaker pound and euro.
TCS shares closed 3.03 per cent lower while Tech Mahindra and Infosys shares ended 0.47 per cent and 2.37 per cent down respectively compared to 0.08 per cent gain in the Nifty50 index. IT stocks had also fallen sharply on Friday.