As Nifty IT Rallies, This Is What You Should Know Before Betting On Wipro, TCS And Others
The Nifty IT has rallied nearly 29% in last three months. But it remains to be seen if there is more steam left.
The Nifty IT has rallied nearly 29% in last three months, with the mid-cap stock Persistent Systems Ltd. leading gains, advancing 38% during the period. A positive outlook from information technology companies post the first-quarter results has presumably helped the market sentiment. But it remains to be seen if there is more steam left.
What's Behind The IT Momentum?
The positive momentum in IT stocks since the election results on June 4 can be attributed to many sector players seeing stable demand environment, as mentioned in the first-quarter result commentary.
Another major reason could be hopes for the Fed rate cut, which might give room for more IT spends by clients, as most of the clients of the IT companies are US-based.
Fewer deal cancellations was another positive for the sector during the April-June quarter.
Here is a look at how IT stocks have done, what lies ahead and what investors monitor.
Infosys
Price Momentum
Infosys shares have gained 34% in three months. Valuations in terms of price to FY25 earnings estimate are at 30.4 times, while the stock is currently near its 52-week high of Rs 1,959 per share.
What Lies Ahead?
Infosys increased its fiscal 2025 revenue guidance after the first-quarter results. This implies improved revenue growth and margins outlook for the rest of the year.
BFSI Trajectory
The management also spoke about improvement in the company's banking, financial services and insurance business. This vertical could aid business growth.
Monitorables For Investors
Fiscal 2025 wage hike could impact margins. However, the timeline for this is not yet announced.
Retail vertical should be another focus area, as it continues to face challenges.
Of the 45 analysts tracking the company, 28 have a 'buy' rating, four recommend a 'hold' and 13 suggest a 'sell', according to Bloomberg data. The 12-month analysts' price target implies a potential downside of 3.7%.
Tata Consultancy Services
Price Movement
Tata Consultancy Services Ltd. stock has gained 20% in three months. Valuations in terms of price to FY25 earnings estimate stand at 32 times. While, the stock is still below 52-week high of Rs 4,592 per share.
What Lies Ahead?
The management expects improved deal booking in the second quarter, due to spilled over deals.
Monitorables For Investors
Communications vertical continues to stay weak.
Of the 47 analysts tracking the company, 29 maintain a 'buy' rating, eight recommend a 'hold' and 10 suggest a 'sell', according to Bloomberg data. The 12-month analysts' consensus price target implies a potential downside of 4.6%.
Wipro
Price Movement
Shares of Wipro Ltd. have risen 19% in three months. The stock is marginally cheaper at 23.3 times fiscal 2025 price to earnings. It is still below 52-week high of Rs 579 per share.
What Lies Ahead?
The second-quarter guidance implies improved revenue growth on a sequential basis.
Monitorables For Investors
Growth in Europe and Asia Pacific, Middle East, and Africa market as they continue to be soft.
Capco business, as discretionary spends is under pressure.
Of the 43 analysts tracking the company, six have a 'buy' rating, 24 recommend a 'hold' and 13 suggest a 'sell', according to Bloomberg data. The 12-month analysts' consensus price target implies a downside of 6.6%.
HCL Technologies
Price Movement
HCL Technologies Ltd. has risen 28% in three months. While it is the fastest growing IT services company among peers, most brokerages are bullish on the stock due to its valuations. The stock is trading at a price to earnings ratio of 28.6 times, based on FY25 earnings per share. The stock is currently trading at 52-week high of Rs 1,816 per share.
What Lies Ahead?
Even the higher end of the fiscal 2025 guidance implies flat revenue growth, while margin guidance implies small improvement.
Monitorables For Investors
Growth in Engineering, Research and Development space as management sees green shoots.
Financial services as management expects it to be soft.
Of the 43 analysts tracking the company, 20 maintain a 'buy' rating, seven recommend a 'hold' and 16 suggest a 'sell', according to Bloomberg data. The 12-month analysts' consensus price target implies a potential downside of 8.6%.
