IT Stocks Today: IT stocks were buzzing in early trade on Thursday, with the Nifty IT index rallying as much as 1.71% to hit an intraday high of 28,178.60.
Among individual IT stocks, Infosys rose as much as 2.51% to Rs 1,019.10, while TCS gained 1.66% to Rs 2,084.60. Tech Mahindra climbed 2.02% to Rs 1,554.80, HCLTech advanced 1.42% to Rs 1,247.50, and Coforge rose 2.43% to Rs 1,791.60.
Meanwhile, Wipro gained 1.55% to Rs 160.95, Persistent Systems increased 1.46% to Rs 5,356, Mphasis surged 3.56% to Rs 2,231, LTM rose 0.40% to Rs 4,061.30, and OFSS gained 0.23% to Rs 10,654.
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At 9:28 am, the Nifty IT index was trading 1.43% higher at 28,101.85, even as the Nifty 50 was down 0.38% at 22,534.25.
Why Are IT Stocks Rising Today?
The gains in IT stocks come after Morgan Stanley analysts Sulabh Govila, Gaurav Rateria, Shreshtha Chopra and Sakshi Rana initiated coverage on two Indian IT services challengers — Persistent Systems and Hexaware — with an 'Overweight' rating.
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The brokerage sees higher growth visibility among challenger IT companies amid the new technology cycle, with opportunities to expand their total addressable market (TAM) and offset deflationary pressures facing the sector.
Morgan Stanley On India IT: ‘Chasing Growth Through Challengers'
Morgan Stanley said it prefers challengers over Tier-1 IT vendors in the new technology cycle, citing higher growth visibility, TAM expansion and investments that could help offset deflationary forces.
The brokerage said challengers have sustained a 10%-40% premium to large-cap IT stocks since 2021 and could see further polarisation going ahead.
Persistent Systems, Hexaware Initiated With 'Overweight'
Morgan Stanley initiated coverage on Persistent Systems and Hexaware with an 'Overweight' rating.
The brokerage described Persistent Systems as an execution engine, citing its track record of moving towards high-growth areas. However, it noted that the digestion of a mega-scale acquisition could test the company's execution capabilities over the next two years.
For Hexaware, Morgan Stanley sees the company as a recovery play with a cash-flow franchise that is superior to peers. The brokerage said client-specific issues have affected performance since the company's relisting, but expects these issues to reverse, allowing growth trends to improve.
Morgan Stanley's Preference Within IT Challengers
Morgan Stanley said its order of preference among challenger IT companies is based on growth visibility and valuations relative to revenue growth.
The brokerage's stated preference is Coforge > Mphasis > Hexaware > Persistent Systems > LTM.
Why Morgan Stanley Prefers IT Challengers
According to Morgan Stanley, every business and technology cycle creates a different set of opportunities, challenges and beneficiaries. The previous technology cycle saw mid-tier IT companies emerge as outperformers as challengers.
The brokerage believes several of the factors that supported that performance remain relevant in the current technology cycle. Challengers now have a seat at the large-deal table, unlike at the start of the previous cycle, while their investments to expand TAM could help them offset deflationary pressures.
Morgan Stanley also sees higher growth visibility among challengers compared with Tier-1 IT companies, which could contribute to further valuation polarisation.
Key Risks To Morgan Stanley's IT Stock View
Morgan Stanley highlighted three key risks to its view:
- Sector-level deflation: Lower IT services spending could impact these structural growth stories more than expected.
- Client-specific issues: Challenger IT companies have higher revenue concentration than larger-cap peers, increasing their exposure to individual client developments.
- Equity supply: Private equity exits or a qualified institutional placement (QIP) could create additional equity supply as companies seek to ease cash-flow pressures.
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