JPMorgan ‘Underweight’ on Tata Technologies but bullish on engineering

Though engineering, research and development companies remain a “star” for JPMorgan, it has initiated coverage of Tata Technologies Ltd. with ‘underweight’ ratings.

The brokerage cited high client concentration and limited evidence of scaling non-anchor clients as reasons for its underweight stance on Tata Tech.

Meanwhile the brokerage is bullish on ER&D services companies as their growth continues to be relatively resilient, led by stickier research and development spending.

ER&D has outpaced IT by 1,100 basis points on organic growth over the last year and by 800 basis points over the last four years, according to JP Morgan. “We expect this outperformance to continue, driven by the large TAM that arises from outsourcing underpenetration.”

The worst of the demand for the sector is behind, and spending should start to see a gradual recovery over CY24, the brokerage said. The strongest demand is seen in autos, followed by aerospace and sustainability, it said.

The brokerage initiated coverage with an ‘underweight’ on Tata Tech, with a target price of Rs 800 per share, implying a downside of 23% from Tuesday’s closing price.’

JPMorgan also initiated coverage on Cyient Ltd. with an ‘overweight’ and a target price of Rs 2,600 apiece, implying an upside of 31%. Bloomberg