TCS, Infosys, Wipro, HCL Technologies, Tech Mahindra, and other IT stocks may perhaps stay in powerful upward momentum, continuing the stellar functionality of the last 18 months, stated domestic brokerage and investigation firm Edelweiss Securities. The brokerage firm has been bullish on domestic IT stocks for the last couple of months now on the other hand, it stated it has “underestimated the tidal digital wave on both growth and margins”. “We now forecast industry revenue growth for the next three years will be 18-20% while margins, on average, will expand 100-200bps vis-a-vis FY21 led by pricing power and many of the costs not returning to pre-pandemic levels ever,” Edelweiss stated.
Stocks to obtain
The tech upcycle has just began for IT businesses and there is nonetheless a lengthy way to go, Edelweiss stated. “We strongly believe the Tech Upcycle has progressed just a few quarters and that $500 billion hyperscaler revenues will percolate to services over the next three-five years, which would unleash substantial upsides — even hereon,” the report stated. Edelweiss has a obtain rating on Infosys, TCS, HCL, L&T Infotech, Coforge, Mindtree, Birlasoft, and First Firstsource Solutions. There is no lower rating assigned to any IT stock beneath Edelweiss’ coverage.
Upgraded target prices
TCS: Buy – Target: Rs 5000 – Upside 29%
Infosys: Buy – Target: Rs 2,354 – Upside 40%
HCL Technologies: Buy – Target: Rs 1,710 – Upside 38%
Tech Mahindra: Buy – Target: Rs 1,751 – Upside 21%
Larsen & Toubro Infotech: Buy – Target: Rs 6,459 – Upside 16%
LT Technology Services: Buy – Target: Rs 5,004- Upside 15%
Mindtree: Buy – Target: Rs 4,575 – Upside 16%
Coforge: Buy – Target: Rs 7,357- Upside 39%
BirlaSoft: Buy – Target: Rs 568 – Upside 39%
Firstsource: Buy – Target: Rs 251 – Upside 24%
Edelweiss Securities has assigned 48x one-year forward numerous to Mindtree and 40x numerous to Coforge, LTI and LTTS believing that they are improved proxies to hyperscalers and ER&D market, “We prefer HCL, Infosys and TCS among large-caps, and Coforge, LTI and Mindtree in mid-caps. Among small-caps, we prefer Persistent, Birlasoft and Firstsource,” they added.
Higher demand for IT services
IT services continue to witness higher demand, according to Edelweiss. This surge in demand is enabling IT sector players to choose big customers that drive development. “Companies are also quite forthcoming on repricing new contracts, and even existing ones that are undergoing renewals, citing massive demand-supply mismatch. Clients are loosening purse strings for time-sensitive projects, tacitly paying 3–8% higher on average,” Edelweiss stated.
The existing technologies cycle is seen to be more potent than all prior ones. “We remain confident that like all the past three IT upcycles, multiple re-ratings would be sharp in the early phase of this cycle too, which would be followed by further earnings upgrades as Street would play a catch-up,” the brokerage firm added. Serious information breaches, adverse currency movement, budgetary allocations, and adverse regulations are some of the dangers that are aligned with IT stocks.
(The stock suggestions in this story are by the respective investigation and brokerage firms. TheSpuzz Online does not bear any duty for their investment assistance. Please seek advice from your investment advisor ahead of investing.)