Top largecap, midcap, smallcap Indian IT stock picks as suggested by brokerages

Market


Indian IT stocks have recently been under pressure amid the current market selloff. Recession fears leading to possible reductions in IT spending by clients has also dampened the sentiment of the investors. Recently, various global brokerage and research firms have downgraded Indian IT sector, and also trimmed earnings estimates for FY23.

Domestic brokerage and research firm Edelweiss in its latest report on IT said that it prefers HCL Tech, Infosys and Tata Consultancy Services (TCS) among the large-caps and Coforge, LTI and Mindtree among midcap IT stocks. Among small caps, it prefers Zensar Tech, Birlasoft and Firstsource Solutions.

Accenture’s strong performance and solid commentary supports brokerage Edelweiss’ thesis of a robust tech upcycle. “Its outsourcing growth remains high and bookings also remain strong, which bodes well for Indian IT services companies,” it said in a note.

Analysts at brokerage JM Financial said that Accenture’s results confirm the ‘All’s well for now’ thesis for Indian techs despite increasing concerns of hit on IT spending given a weak macro set up. “Our channel checks also suggest that demand is holding up well for Indian techs for now with the likely macro set up expected to benefit offshore techs, albeit with a lag.”

Infosys and HCL Tech are the brokerage’s top stock picks amongst Tier I techs, while Mphasis, Persistent Systems amongst Tier II ‘s and Zen Tech and Firstsource amongst small caps.

“While supply-side challenges remain a point of concern, with elevated attrition and lower headcount addition, Accenture’s margin guidance implies a stable margin performance in FY23. While strong revenue growth and commentary on the pipeline is positive for the IT Services sector, weak employee addition (lowest in the last six quarters) and moderation in deal bookings (-13% QoQ) should dampen the demand outlook,” said another brokerage Motilal Oswal.

The brokerage has maintained its positive stance on the IT sector as it expects sustained growth with stable margin. Infosys, HCL Tech, and TCS remain its preferred stock picks within the Tier I IT space.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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