TCS, Infosys, Wipro, HCL Technologies, Tech Mahindra and other IT stocks could remain on strong bullish momentum, continuing the excellent performance of the past 18 months, national brokerage and research firm Edelweiss Securities said. The brokerage firm has been bullish on domestic IT stocks for a few months now; however, he said he had “underestimated the digital tidal wave on both growth and margins.” “We now expect industry revenue growth for the next three years to be 18-20%, while margins, on average, will increase 100-200 basis points from FY21, in because of the pricing power and many costs not accruing to those before the pandemic. levels ever, ”said Edelweiss.
Shares to buy
The technology upgrade cycle has just started for IT companies and there is still a long way to go, Edelweiss said. “We are confident that the Tech Upcycle has only advanced a few quarters and that hyperscaler’s $ 500 billion in revenue will trickle down to services over the next three to five years, triggering substantial benefits – even here. “, says the report. Edelweiss has a buy rating on Infosys, TCS, HCL, L&T Infotech, Coforge, Mindtree, Birlasoft and First Firstsource Solutions. No reduction rating is attributed to IT stock under Edelweiss coverage.
Improved target prices
TCS: Buy – Objective: Rs 5000 – Upside 29%
Infosys: Buy – Target: Rs 2,354 – Upside 40%
HCL Technologies: Purchase – Target: Rs 1,710 – Increase of 38%
Tech Mahindra: Buy – Target: Rs 1,751 – Upside 21%
Larsen & Toubro Infotech: Buy – Target: Rs 6,459 – Upside 16%
LT technology services: Purchase – Target: Rs 5,004 – 1% increase
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 assigned 48x a one-year term multiple to Mindtree and 40x multiple to Coforge, LTI and LTTS, believing that they are better proxies for hyperscalers and the ER&D industry, “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.
Increased demand for IT services
IT services continue to be in high demand, according to Edelweiss. This surge in demand allows players in the IT sector to select large customers with growth potential. “Companies are also quite open about re-pricing new contracts, and even existing contracts that are being renewed, citing a massive mismatch between supply and demand. Customers are loosening the purse strings for urgent projects, tacitly paying 3 to 8% more on average, ”said Edelweiss.
The current technology cycle is considered more powerful than all the previous ones. “We remain convinced that, as with the last three IT upgrade cycles, multiple reassessments would also be significant early in this cycle, which would be followed by further earnings upgrades as Street caught up,” said the brokerage company. added. Serious data breaches, unfavorable currency movements, unfavorable budget allocations and regulations are some of the risks that are aligned with IT stocks.
(The stock recommendations in this story are by the respective research and brokerage firms. The Bharat Express News Online assumes no responsibility for their investment advice. Please consult your investment advisor before investing.)