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Motilal Oswal lists 7 high conviction ideas from IT space for 1-3 months

Updated : 2020-09-21 13:14:08

While the rest of the sectors posted a 20-30 percent earnings decline in Q1, IT looked relatively resilient with 5-10 percent earnings growth. As per a recent report by Motilal Oswal, the momentum in the IT space will continue in the second quarter as well. Good guidance given by few large and midcap companies IT will stand-out tall this year as one of the few sectors as far as Q2 earnings are concerned, it added. MOSL expects series of earnings upgrade this quarter (Q2) ranging between 5-10 percent for large-cap IT names. It has listed below 7 high conviction ideas from the IT space which it expects to do well in the short to medium term. One can buy this basket of 7 stocks with a potential upside of 10-15 percent over a time frame of 1-3 months, it added. Take a look:

 TCS : Over the medium term, the brokerage expects TCS to be a key beneficiary of the COVID-19-driven increase in technology intensity across verticals. Continued traction in large deals, a healthy pipeline, and better resilience in BFSI are encouraging factors for the firm, it added. MOSL assigns a 25 percent weightage to this stock in the portfolio.
TCS: Over the medium term, the brokerage expects TCS to be a key beneficiary of the COVID-19-driven increase in technology intensity across verticals. Continued traction in large deals, a healthy pipeline, and better resilience in BFSI are encouraging factors for the firm, it added. MOSL assigns a 25 percent weightage to this stock in the portfolio.
 Infosys : Infosys delivered a strong beat on both revenue and margin front in its Q1FY21 earnings as deal wins and pipeline both remain healthy. MOSL expects further expansion in margins as investments stabilize and back-ended productivity benefits kick in. This stock also has a 25 percent weightage in the portfolio.
Infosys: Infosys delivered a strong beat on both revenue and margin front in its Q1FY21 earnings as deal wins and pipeline both remain healthy. MOSL expects further expansion in margins as investments stabilize and back-ended productivity benefits kick in. This stock also has a 25 percent weightage in the portfolio.
 Tech Mahindra:  According to MOSL, a ramp-up in recently won mega deals was largely on track, a key positive. It upgraded its EPS estimates over FY21–22E by 17 percent and revisited the growth and margin trajectory in light of the surprise in 1QFY21 and optimistic commentary. MOSL believes the sector re-rating is likely to sustain given the phenomenal resilience and adaptability demonstrated during the quarter. This stock has a 10 percent weightage in the brokerage's portfolio.
Tech Mahindra: According to MOSL, a ramp-up in recently won mega deals was largely on track, a key positive. It upgraded its EPS estimates over FY21–22E by 17 percent and revisited the growth and margin trajectory in light of the surprise in 1QFY21 and optimistic commentary. MOSL believes the sector re-rating is likely to sustain given the phenomenal resilience and adaptability demonstrated during the quarter. This stock has a 10 percent weightage in the brokerage's portfolio.
 Wipro:  The brokerage believes Wipro is a good re-rating candidate due to the (a) upside of a turnaround under the new CEO, (b) possibility of an impending buyback, and (c) relatively attractive valuations (versus TCS and Infosys), and (d) possibility of large capital return. Despite the COVID-19 impact, margin resilience/cash generation of the firm was impressive this quarter, it added. Wipro also has a 10 percent weightage in MOSL's portfolio.
Wipro: The brokerage believes Wipro is a good re-rating candidate due to the (a) upside of a turnaround under the new CEO, (b) possibility of an impending buyback, and (c) relatively attractive valuations (versus TCS and Infosys), and (d) possibility of large capital return. Despite the COVID-19 impact, margin resilience/cash generation of the firm was impressive this quarter, it added. Wipro also has a 10 percent weightage in MOSL's portfolio.
 L&T Infotech : Despite the COVID-19 disruption, the company's client addition across buckets was strong and broad-based in 1QFY21. Industry-leading growth plus prudent capital allocation should defend its rich multiples. It expects to be a key beneficiary of the accelerated digital adoption in the post COVID-19 world.
L&T Infotech: Despite the COVID-19 disruption, the company's client addition across buckets was strong and broad-based in 1QFY21. Industry-leading growth plus prudent capital allocation should defend its rich multiples. It expects to be a key beneficiary of the accelerated digital adoption in the post COVID-19 world.
 Mindtree:  As per the brokerage, the strategy change to increase focus on annuity revenue and tail account rationalization is already reflecting in the revenue and client mix. It added that the share of revenue from fixed-price contracts showed a meaningful increase in 1QFY21. A continued robust outlook for the top account, decent deal signings, and strong margin execution are key positives, MOSL further noted. It also has a 10 percent weightahe in the portfolio.
Mindtree: As per the brokerage, the strategy change to increase focus on annuity revenue and tail account rationalization is already reflecting in the revenue and client mix. It added that the share of revenue from fixed-price contracts showed a meaningful increase in 1QFY21. A continued robust outlook for the top account, decent deal signings, and strong margin execution are key positives, MOSL further noted. It also has a 10 percent weightahe in the portfolio.
 Coforge : The company delivers services around the world directly and through its network of subsidiaries and overseas branches. It is rendering IT solutions and is engaged in Application Development and Maintenance, Cloud Computing and BPO services to organizations in a number of sectors. The company has excellent return ratios of RoE-21 percent and RoCE-27 percent and has a very good growth potential going forward, the brokerage said. MOSL assigns a 10 weightage to the stock in the portfolio.
Coforge: The company delivers services around the world directly and through its network of subsidiaries and overseas branches. It is rendering IT solutions and is engaged in Application Development and Maintenance, Cloud Computing and BPO services to organizations in a number of sectors. The company has excellent return ratios of RoE-21 percent and RoCE-27 percent and has a very good growth potential going forward, the brokerage said. MOSL assigns a 10 weightage to the stock in the portfolio.
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