IT Sector Outlook: In the fourth quarter of FY 2021, IT companies can see strong growth in earnings and revenue. They have got a boost from the new work orders of the IT companies. In addition, companies are spending heavily on cloud migration, demand environment remains in place and increased focus on workplace management. All these can be seen in the fourth quarter. Talking about the IT sector, it is trading at a 39 per cent premium to the 10-year average multiple. In such a situation, the topline growth of the sector can remain in double digit. Brokerage houses MK Global and Motilal Oswal have suggested investing in Tier 1 and Tier 2 stocks in some.
What to say about MK Global
Brokerage house MK Global believes that in the fourth quarter of FY 2021, Tier 1 tech companies are expected to see 2.2–3.9 per cent growth in CC terms and 2.5–4.5 per cent growth in Tier 2 tech companies on a quarterly basis. According to the brokerage, the revenue growth was strong in the third quarter, which will continue in the fourth quarter as well. Clouding, Digital Transformation, Automation, AI and Cyber Security continue to have strong demand, which is benefiting the IT sector.
According to the brokerage, CC Revenue growth guidance of Infosys and HCL Tech can be 12-15 per cent and 11-13 per cent on an annual basis. At the same time, their EBIT margin can be 22-24 per cent and 20-21 per cent in FY22.
Motilal Oswal’s opinion
According to brokerage house Motilal Oswal, the growth in the CC term for Tier 1 companies on a quarterly basis is expected to be between 2.5 and 3.4 per cent. This could be their strongest quarter in the last 5 years. At the same time, the growth of Tier 2 companies can be between 3.3-5.2 percent. According to the brokerage, companies are benefiting from strong demand environment and large deals. The EBIT / PAT growth of the sector in 4QFY21 can be 8% / 19.7% / 16.2% on an annual basis. The brokerage house also believes that in the future, companies will get a good deal.
These stocks can be seen rising
Brokerage house Umke Global recommends investing in Tier-I shares in Infosys, HCL Tech and Tech Mahindra, while holding in TCS and Wipro. Investment in Tier-II shares is advised in Persistence Systems and First Source Solutions.
At the same time, brokerage house Motilal Oswal has also expressed confidence in Infosys and HCL Tech in Tier-I shares. The brokerage believes that Infosys may see good growth in the March quarter on the back of a strong deal. At the same time, good growth can be seen in LT Technology Services and CYL in Tier-II stocks.
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