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Top 8 IT stocks to BUY ahead of Q2 results, as recommended by HDFC Securities



The shares of Infosys, Larsen & Toubro Infotech, Mindtree, Mphasis, Persistent Systems Ltd, Cyient Ltd, Sonata Software Ltd, and Zen Technologies Limited has a BUY recommendation from the brokerage. (istockphoto)


Given the current economic situation, the brokerage firm HDFC Securities anticipates solid performance in the second quarter in the IT sector. Shares of Infosys, Larsen & Toubro Infotech, Mindtree, Mphasis, Persistent Systems Ltd, Cyient Ltd, Sonata Software Ltd and Zen Technologies Limited have a buy recommendation from the brokerage.

Research analysts at brokerage firm HDFC Securities said in a note that “the IT sector is expected to show resilient performance in the second quarter amid the current macroeconomic environment. Tier 1 IT is expected to deliver sequential growth 2.4% to 4% CC Severity of currency impact will be similar to last quarter with a sequential impact of -1.3% to -1.8% for Tier-1 Although this is a wider band (0.9% to 5.3% QoQ), the growth outperformance of mid-tier computing (vs. Tier 1) is expected to continue into the second Within midstream, Tata Elxsi, Mindtree and Persistent are expected to lead to above-average single-digit sequential growth Supply-side normalization (lower monthly vacancies and employment indexes) can be interpreted as positive from the point of view operational/margin. Despite macroeconomic challenges in Europe, contracting activity remains strong (TCS-M&S, Boots, Nokia, Zurich Insurance; Infosys-Telenor, LTTS-BMW, ​​Persistent-Monument Bank). Accenture’s outsourcing bookings are at an all-time high (also impacted by longer transaction times) and the high end of the revenue guide also indicates resilient demand.”

Company Recommendation Target price in Rs
CDS TO ADD 3,620
Infosys TO BUY 1,790
HCL Technologies TO ADD 1,125
Wipro TO ADD 470
Tech Mahindra TO ADD 1,080
Larsen & Toubro Infotech Ltd TO BUY 5,270
Aunty Elxsi SALE 6,700
Mindtree Ltd TO BUY 3,930
Mphasis Ltd TO BUY 2,900
Persistent systems TO BUY 5,025
Cyient Ltd TO BUY 925
Sonata Software Ltd TO BUY 650
Mastek Ltd REDUCE 1,850
Zensar Technologies Ltd TO BUY 300

“With the Pound and Euro down nearly 10% since last quarter, compounded by the Yen and Aud, currency volatility will negatively impact Q2 performance as well as Q3FY23E For IT Tier 1, we expect CC growth moderation to 13% for FY23E (~400 bps of negative cross impact) and CC growth of 10% for FY24E (~1% cross impact). negative cross) compared to 18% growth recorded during FY22. Infosys is expected to maintain its CC forecast of 14-16% for FY23E and HCL Tech is expected to maintain its growth forecast of 12-14% for FY23E. Wipro’s third quarter growth is expected to be 1-3% CC QoQ and LTTS is expected to maintain its CC growth of 14.5-16.5% for FY23E,” they added.

“We estimate margins bottomed in Q1 after correcting >400 bps from peak post-covid (Q3FY21) levels and are down about 100 bps from pre-covid. We are building 100bps margin lower than pre-covid for FY23E and some recovery in FY24E (at pre-covid) supported by medium term tailwinds of normalization in attrition/undercon, the usage and pricing Impact on salaries and currency conversion will impact margin in Q2 offset by no visa fee, INR depreciation, improved usage and efficiency. We believe the downside risk to margin is low, even with a rapid moderation in demand,” they said in a research report.

“IT Index P/E multiples are down 35% year-to-date, with earnings down around 6%. While P/E downgrade led by risk macroeconomic on growth (FY24E), earnings cuts were driven by margin cuts as the lag between growth and operating structure normalizes The margin of safety is higher for Tier-1s, with valuations close to the 10-year average (compared to >40% premium at year-end 21) The resilience of mid-tier IT is reflected in the continued growth premium (>500 bps mid-tier IT growth base from Tier-1 in FY22-25E) and consensus earnings estimate nearly unchanged (2% reduction vs. 7% average reduction for Tier-1 in FY22-25E) past 3 months) We report target valuations to EPS Jun-24E and reset USD-INR estimates. Maintaining our constructive stance on the sector and near-term volatility provides a strong opportunity for absolute return,” the research analysts said.

The opinions and recommendations made above are those of individual analysts or brokerage firms, and not of Mint.

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