Research and brokerage firm Motilal Oswal Financial Services believes that the IT sector will stand-out tall this year as one of the few sectors as far as July-September earnings are concerned.
After the pandemic, it is expected that outsourcing business will witness a boost with spends accelerating from 4-5% pre-Covid level numbers.
IT stocks were in focus today as HCL Tech, Infosys, Mindtree and Wipro shares hit a fresh 52-week high. In the intraday deals on BSE, Infosys was the top-performing stock. The Nifty IT index jumped 2.5 per cent to scale a new 52-week high 20,331.60. Out of 10 index constituents, eight were trading in the positive territory in the range of 0.50-3 per cent. While, in the afternoon deals, Nifty IT index slipped into the red, erasing all the morning gains. From its 52-week low, Nifty IT index has surged 85 per cent, in comparison, Nifty 50 has soared 51.67 per cent. Research and brokerage firm Motilal Oswal Financial Services believes that the IT sector will stand-out tall this year as one of the few sectors as far as July-September earnings are concerned. While the rest of the sectors posted 20-30% earnings decline in Q1, IT looked relatively resilient with 5-10% earnings growth.
In its recent report, Motilal Oswal noted that while rest of the sectors posted 20-30% earnings decline in Q1, IT looked relatively resilient with 5-10 per cent earnings growth. The report highlighted that the momentum will continue in Q2 as well especially after good guidance given by few large and midcap companies. The brokerage firm expects a series of earnings upgrades this quarter (Q2) ranging between 5-10 per cent for large-cap IT names. It listed 7 high conviction ideas from the IT space which are expected to do well in the short to medium term. “One can buy this basket of 7 stocks with a potential upside of 10-15 per cent over a time frame of 1-3 months. The stop loss for the entire basket should be 6-7%,” it added. In its basket of seven stocks, Motilal Oswal has given 25 per cent weightage each to TCS and Infosys.
TCS: TCS shares were nearly one per cent up in an otherwise weak market. Over the medium term, Motilal Oswal expects the IT firm to be a key beneficiary of the COVID-19-driven increase in technology intensity across verticals. It said that continued traction in large deals, a healthy pipeline, and better resilience in BFSI are encouraging factors for Tata Consultancy Services.
Infosys: Infosys shares climbed over 1 per cent to scale a fresh 52-week high of Rs 1,030.80 apiece. The stock price has more than doubled from its March low of Rs 511 per share. The brokerage firm highlighted that the deal wins and the deal pipeline both remained healthy. It expects further expansion in margins as investments stabilize and back-ended productivity benefits kick in.
Tech Mahindra: Tech Mahindra shares slipped into red after trading in the positive territory for most of the past of the trade. “We upgrade our EPS estimates over FY21–22E by 17% as we revisit our growth and margin trajectory in light of the surprise in 1QFY21 and optimistic commentary,” Motilal Oswal said in its report.
Wipro: The shares of Wipro hit a new 52-week high of Rs 324 apiece in today’s trade. The stock has risen 51 per cent since March. The brokerage firm believes Wipro is a good re-rating candidate due to the upside of a turnaround under the new CEO, the possibility of an impending buyback, and relatively attractive valuations (v/s TCS and Infosys, 13x 1-year forward P/E) and the possibility of large capital return.
L&T Infotech: Motilal Oswal in its report noted that despite the COVID-19 disruption, L&T Infotech’s client addition across buckets (3 in USD10-20m and 3 in USD5-10m) was strong and broad-based in 1QFY21. Industry-leading growth plus prudent capital allocation should defend its rich multiples.
The other two stocks are Mindtree and Coforge, in which the brokerage firm sees a potential upside of up to 15 per cent in three months.
(The stock recommendations in this story are by the respective research and brokerage firm. Financial Express Online does not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)