Top IT Picks: Four brokerage firms highlight ten stocks you should bet on
Top IT Picks: Four brokerage firms highlight ten stocks you should bet on
Brokerages are beginning to warm up to India's technology services providers ahead of their June quarter results, which begin next week. This comes after brokerage firm CLSA, double upgraded shares of Wipro on Monday.
Wipro has received another upgrade on Tuesday, this time from Nomura. The brokerage said that the June quarter will mark the bottom of sluggish revenue growth for the sector. While it did say that discretionary demand may take a few quarters for a strong recovery, it is unlikely to worsen from these levels.
A potential interest rate cut in the US during the second half of 2024 may also provide a fillip to demand, according to Nomura.
Turning bullish on the sector, Nomura is projecting revenue growth of 7.7% for largecap IT stocks in financial year 2026, from 3% projected in financial year 2025.
It has upgraded Wipro to "buy" from its earlier rating of "Reduce", while Infosys and HCLTech have also been upgraded to "buy" from an earlier rating of "neutral".
- Nomura's Top Largecap IT Picks: Infosys, Wipro, Tech Mahindra
- Nomura's Top Midcap IT Picks: Coforge, Birlasoft
Nuvama too remains positive on the IT sector post the recent volatility that it has been through.
The brokerage said that estimates for financial year 2025 have been adequately cut post the March quarter results, leaving little room for further downgrades.
Nuvama expects revenue growth this financial year to be better than the last, which will lay the foundation for a strong financial year 2026. It anticipates Hi-Tech and BFSI sectors to start recovering quickly.
Nuvama Positive On: LTIMindtree, Infosys, Coforge, Persistent Systems, TCS, HCLTech and Firstsource Solutions.
Jefferies though, remains selective on the sector, stating that the recent management interactions and Accenture's unchanged demand commentary suggests pressure on budgets and a limited pick-up in demand.
It expects no change to the companies' financial year 2025 guidance range, which may further drive earnings cuts.
"We believe that the sector's 28 times price-to-earnings multiple is a 20% premium to its five-year average and a 35% premium to the Nifty, is rich," Jefferies wrote in its note.
The brokerage advises staying selective on the entire sector, with only Infosys as its top pick.
Motilal Oswal too remains cautious on the sector, stating that they are on track to witness one of the weakest first quarters for at least a decade and that any disappointment in the first quarter would again put pressure on the second quarter.
However, it did say that the brutal winter of cuts in discretionary spends in the industry is mostly over and a ramp-up of large cost-takeout deals could drive growth for largecaps.
The Nifty IT index is trading 1% higher on Tuesday, extending its gains for the fourth day in a row.