Jefferies has given a buy rating on IT stocks in its report. According to Jefferies, he has put a buy tag on Infosys with a target of Rs 2,135, Tech Mahindra with a target of Rs 1,890 and HCL Technologies with a target of Rs 1,440. Apart from this, a target of Rs 3,870 has been set on Tata Consultancy Services (TCS) and Rs 550 on Wipro.
The global brokerage believes that strong client engagement and strong deals will be ensured by Infosys to play a role in this industry growth.
Jefferies has a bullish outlook on Tech Mahindra due to strong deal momentum and demand. With this, the company can see annual revenue growth of more than 12% in FY22-24E. “The company is poised to take advantage of the upcoming 5G capex cycle. Its valuation looks fair in terms of growth potential.”
The brokerage, on the other hand, believes that HCL Technologies will benefit from rising cloud spending due to its strong background in IMS services and investments in digital offerings.
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According to Jefferies’ opinion on TCS, TCS will continue to maintain a strong growth profile and margin leadership among Tier-1 IT firms. “Revenue growth may remain in double digits in FY 22-24E. On the other hand, EBIT margins may remain under pressure and in the narrow band during FY22-24E. However, the growth seems to have been digested and the stock looks decent from a valuation point of view.”
Commenting on Wipro, the brokerage said that Wipro has a long track record of underperformance and a new strategy on this is still in the early stages. Its revenue growth may still lag behind its peers in FY22-24E. On the other hand, margins are likely to be under pressure due to continued investment and supply pressures.
Jefferies has forecast a decline of around 70 basis points (bps) in margins for IT firms in FY2023. He expects top 5 Indian IT firms to provide 7-15% EPS CAGR in FY 2022-24. At the same time, Infosys and Tech Mahindra remain Jefferies’ top stock picks due to their strong growth outlook.
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