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Domestic brokerage and research firm Akis Securities has maintained a cautiously positive long-term outlook on the Indian IT sector, backed by strong investments in digital technologies, Cloud Transformation, IoT, As-a-Service and Machine Learning, which will accelerate revenue growth across verticals.
“However, due to challenging macroeconomic events, the company may face execution difficulties and see delays in automation.” Furthermore, the rising attrition rate would still remain a key concern further delaying current automation projects. On the bright side, a few tailwinds such as a weakening rupee may offset some of the higher operating costs,” the brokerage said in a sector note.
The dollar has appreciated significantly in recent months to near two-decade highs against other currencies, as weaker global economic growth drives investors to safe havens.
“Furthermore, steps taken by the Federal Reserve, such as tightening its monetary policy and raising interest rates, further supported the dollar. “Typically, a stronger dollar eats into the profits of companies that have large international operations and convert foreign currencies into dollars,” it added.
Sharing its top stocks, Akis Securities said its order of picks from large-cap IT stocks are Infosys, Tech Mahindra, TCS, HCL Tech and Wipro. Whereas, his order of picks from mid-cap IT stocks are Persistent Systems, LTI Mindtree, L&T Technology Services (LTTS), Ciient & Zensar Tech.
Another brokerage ICICI Securities said, “We continue to prefer stocks that are less susceptible to slowdowns and have the potential to continue gaining market share even in a business downturn. We continue to prefer large caps to mid-caps.”
“We believe that Indian IT services management commentary from Q3FY23 will start to weaken and the impact on revenue growth will be visible in Q1 and Q2 FY24. We believe that Indian IT services should always be accumulated when the US macro is at its peak and the next 6-9 months will provide investors with a good opportunity to accumulate the desired bets. We have Ciient as our top pick in our coverage universe, followed by HCL Tech – offering a good risk-reward ratio,” ICICI Securities added.
The views and recommendations given above are those of individual analysts or brokerage firms and not of Mint.
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