Brokerage IDFC Securities initiated coverage on seven information technology stocks, as it sees large caps recovering and mid-cap stocks benefiting from what it calls “the micro-growth story”.
The stock stocks are: Infosys Ltd., Tech Mahindra Ltd., TCS Ltd., Mindtree Ltd., HCL Technologies Ltd., Mphasis Ltd. and Wipro Ltd.
We believe Indian I.T. industry is turning more cyclical, and thus it is unfair to attribute the entire growth moderation to ‘commoditisation' of legacy technology alone. While we see a drop in legacy, selectively, Indian I.T. could see growth recovery from current low-mid single digit to high single-digit, led by cyclical factors and industrialisation of new technologies.IDFC Securities Research Report
“On the other hand, valuations factor in prolonged muted tech spending,” IDFC Securities said.
Besides, IDFC Securities sees HCL Technologies executing well and sees a moderation in growth engine, as enterprise shift to cloud accelerates over the next two years.
The Micro Growth Story
Technology shift from legacy to digital will create an opportunity for relatively smaller players to gain share, the report said. This opportunity, coupled with performance of certain verticals/clients, will create interesting micro growth opportunities in the sector.
“Within the micro growth stories, we like Mindtree and Mphasis, but prefer Mindtree for superior earnings per share growth. We like Tech Mahindra as a tactical play, as we expect margins to rebound from historic low levels on better execution,” IDFC Securities said.
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