BSE IT index surged nearly 2 per cent before cooling off a little, while BSE Sensex tanked over 2 per cent on Monday. Infosys and Happiest Minds Technologies stocks hit 52-week highs of Rs 1,425 and Rs 675, respectively. Research and brokerage firms expect Information Technology companies to post strong revenue growth in the fourth quarter of the previous fiscal, despite cost pressures. Analysts at Motilal Oswal Financial Services said that early indicators like fresh high order bookings from industry peer Accenture in its February 2021 earnings point to an unprecedented demand for tech services, which is expected to reflect in the deal momentum in 4QFY21.
Those at Emkay Global Financial Services echoed similar views for the IT sector. Analysts believe that cloud, digital transformation, automation, Artificial Intelligence (AI) and cybersecurity will continue to see healthy demand. While they also feel that margins may take a hit sequentially on account of salary hikes, promotions, bonuses and strong rupee. The domestic brokerage firm has a ‘buy’ rating on Infosys with a target price of Rs 1,550, implying a gain of 12 per cent from the previous close. It has also given ‘buy’ to HCL Technologies and sees a 12.7 per cent upside with a price target of Rs 1,130 apiece.
Similarly, Tech Mahindra, Persistent, Birlasoft and Firstsource stocks also have a ‘buy’ rating with price targets of Rs 1,190, Rs 2,200, Rs 290 and Rs 125, respectively, with up to 20 per cent rally. For Wipro stock, it has ‘hold’ rating as it believes that IT major is likely to reap the benefits of the simplified operating model, strengthening country/geographical leadership and Metro deal ramp-ups. Also, it is expected to guide 1-3% revenue growth for Q1FY22.
Analysts at Motilal Oswal Financial Services believe that a strong topline growth in the second and third quarter of the previous fiscal has set up the industry for robust double-digit growth in FY22. It also expects a dip in margins for most IT Services companies led by partial wage hikes and increase in attrition levels. The domestic brokerage firm has a ‘buy’ rating to Infosys, HCL Technologies, L&T Technology Services, Mphasis Ltd, Persistent Systems and Cyient Ltd. Analysts expect Infosys to deliver a top quartile growth backed by strong deal wins, justifying its premium valuation. It believes that HCL Technology will receive the dual benefit from massive Cloud adoption, given its resilient expertise in IMS and a strong pickup in P&P, led by its ability to transform and renovate legacy products.
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