India IT Services - Beyond The Wild Swings Of Greed, Fear: Motilal Oswal

Motilal Oswal Report

July turned out to be an eventful month for IT services stocks. It all kicked off with a wave of optimism, fueled by a lack of negative news, which sparked a resurgent rally. However, that excitement was soon dampened by the global macro-economic uncertainty.

As we assess the current landscape, it is essential to reflect on the transformations since Q4 FY24 and identify the ongoing challenges. Our exploration dives deep into these dynamics, shedding light on what has evolved and the obstacles that still lie ahead.

Top picks:

We prefer HCLTech and LTIMindtree among large-caps and Persistent Systems in the mid-cap space. HCLTech has managed seasonality well and is poised for a strong H2 FY25, with an achievable 2.5% growth target. Its free cash flow metrics have meaningfully improved and now match those of TCS and Infosys, justifying a premium valuation.

LTIMindtree is well-positioned for growth in data engineering and ERP modernization, positioning it well to capture the pre-GenAI expenditures. We anticipate LTIMindtree to outperform its large-cap peers and expect low double-digit constant currency growth for FY26.

Persistent Systems’ strong earnings growth and strategic shift to platform-based services for GenAI spending support a projected 17% USD revenue CAGR and ~25%+ EPS CAGR, justifying a premium valuation multiple.

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