The brokerage firm Morgan Stanley has shifted its preference in the Indian IT sector, favouring Tata Consultancy Services (TCS) over Infosys. As per the brokerage report, a combination of macroeconomic concerns, shifting technology cycles, and valuation considerations has led to this decision.
TCS Vs Infosys: Morgan Stanley verdict
Let’s take a look at the key details on what the brokerage has to say on the two stocks-
Morgan Stanley on tech stocks: Slower growth expected for IT sector
According to the brokerage report, one of the main reasons behind this call is the anticipated slowdown in revenue growth for the Indian IT sector. The brokerage in its report noted that its macroeconomics team has lowered US real GDP growth forecasts, predicting “firmer inflation and back-end-loaded rate cuts in 2026.”
This in a way is expected to moderate the revenue growth of Indian IT companies. As a result, the brokerage has cut its USD revenue growth projections by 100 to 200 basis points, expecting 4.5% growth in FY26 and 6% in FY27 for large cap IT firms.
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The brokerage house, Morgan Stanley has downgraded the IT giant Infosys, citing weaker deals wins and a fragile recovery in discretionary spending. “Its growth outlook for FY26 is at risk given weaker deal wins in FY25 vs FY24,” added the report.
In addition to this, while Infosys has outperformed TCS in the past three months, the brokerage notes that its valuation multiples are currently at a premium, despite the expectation that EBIT growth will remain largely similar between the two companies.
“In a volatile macro environment, we believe there is a risk that discretionary spend gets pushed out, which could create greater risk for Infosys vs peers given the high expectations surrounding the stock,” noted the brokerage firm in its report.
Morgan Stanley on changing technology cycle
The brokerage also highlighted a major shift in the technology cycle which in a way is creating a “transition phase” for the IT service provider.
Drawing parallels to 2016-2017, the brokerage firm pointed out that new addressable markets such as Gen AI, data analytics, and automation could take years to fully materialise”. For now,
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