Persistent Systems To KPIT: JPMorgan Expects Mid-Cap IT Firms To Outperform Larger Peers

The mid-cap information technology companies are expected to outperform large-scale peers, while the engineering research and development sector is expected to outshine IT firms in terms of performance, JP Morgan has said.

The research firm expects margins to expand for most IT companies, except HCL Technologies Ltd. (wage hike impact) and LTIMindtree Ltd. (negative leverage), according to an April 3 note.

The demand environment has remained stagnant since reaching a low point in the second half of 2023, showing no perceptible improvement not only in the fourth quarter of financial year 2024 but also extending into the first quarter of fiscal 2025, it said.

It is anticipated that there will be poor fourth-quarter exit rates and a downward adjustment in fiscal 2025 guidance across various companies, the financial services firm said.

To capitalise on potential gains, investors are advised to consider adding higher conviction names to their portfolios. Several IT firms are now supported by the last-twelve-month dividend yields reaching 4%, which should provide a bottom, according to JP Morgan.

JPMorgan upgraded Persistent Systems Ltd. from 'neutral' to 'overweight', LTIMindtree from 'underweight' to 'neutral' and KPIT Technologies Ltd. from 'underweight' to 'neutral'.

Infosys Ltd., Persistent Systems, L&T Technology Services Ltd. are JP Morgan's key 'overweight' stocks. "We expect margins to expand for most, except HCLT (wage hike impact) and LTIM (negative leverage)."