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Motilal Oswal Report
With valuations correcting meaningfully over the last two years (IT services sector price/earning at 24 times, down 26% from the peak), we maintain our positive stance on the IT Services sector, supported by a favorable medium- to long-term demand outlook, despite some near-term pain.
We continue to prefer tier-I players over their tier-II counterparts, given the former's attractive valuations (one-year forward median 22 times), payout yield (median 4.1% FY25E), and diversified business portfolios.
Among tier-I players, we prefer Tata Consultancy Services Ltd., HCL Technologies Ltd., and Infosys Ltd.
TCS augurs well to benefit from long-term secular demand on IT services, and even in the near-term, it is expected to win disproportionately through the current nature of spends.
HCLTech is one of the key beneficiaries of business mix and cloud adoption at scale, given its expertise in engineering research and development and IP Multimedia subsystem.
We expect Infosys Ltd. to be a key beneficiary of the acceleration in digital and business transformation in the medium term.
Among tier-II players, our preference lies with Cyient Ltd., which is poised for robust performance. This is supported by the revival in the aerospace vertical and the easing challenges in sectors such as railways and communications.
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