Kotak Institutional Equities has cut Tata Consultancy Services to 'reduce' from 'add', despite the company's stronger-than-expected earnings a day earlier, citing concerns about valuations and profitability in the industry.
"We believe that slowdown and lack of consolidation in the sector will manifest in reduced pricing power and profitability for TCS and the industry," Kotak said in a note on Friday.
Kotak also cut TCS' target price to Rs 1,125 from Rs 1,280 . TCS shares were up 2.1 percent to Rs 1,262.30 at 10:15 am India time.
Tata Consultancy Services, India's top software services exporter, reported a 38% rise in its fiscal first-quarter profit, beating market expectations, helped by a weaker rupee and increase in demand for outsourcing.
The management has maintained its optimistic outlook despite the uncertain macro scene and in contrast to cautious comments from Infosys. TCS, in dollar terms, registered 13.1 percent growth in revenue to $2.72 billion in Q1 FY'13, compared to Infosys' growth of mere 4.8 percent to $1,752 million.
Meanwhile, Barclays Capital cut its ratings on Infosys to "equal weight" from "overweight", citing "disappointing" April-June earnings and saying the company's guidance was still too aggressive.
Barclays also cut its target price on the stock to Rs 2,300 from Rs 3,010.
Infosys on Thursday sharply cuts its revenue forecast for fiscal 2012-13, sending its shares sharply lower.
"Full year guidance still implies aggressive growth going forward, which could be underestimating risks," Barclays said in a note.