Infosys, Tech Mahindra among 6 IT stocks to buy on strong deal wins; may rally up to 28% in near-term

Indian stock market benchmarks BSE Sensex and Nifty 50 have gained over 8 per cent so far this year amid COVID-19 vaccine rollout, new virus strain and a fresh spike in virus cases in some states of the country. The 30-share Sensex has surged 7.12 per cent, while the NSE’ Nifty has added 8.24 per cent so far in the calendar year 2021. With the economic recovery and strong corporate earnings, the Nifty IT index has managed to gain 6 per cent in little over three months. Research and brokerage firm HDFC Securities Institutional Equities expects the outperformance of the sector to continue. The research report noted that commentary across companies/experts indicated a continuation of multi-year industry tailwind (cloud acceleration) and optimism around the sector hitting and sustaining double-digit growth rate was validated

HDFC Securities Institutional Equities has given a ‘buy’ rating to six out of 15 listed Indian IT companies. It expects the IT sector revenue to grow at 14.4/10.8% (in USD terms) for FY22/23E with mid-tier IT growth to come in at 15.1/12.5%. 

Infosys: The brokerage firm has revised its target price on Infosys to Rs 1,630 from Rs 1,580, earlier, retaining the ‘buy’ rating. It will take Infosys to jump nearly 20 per cent from the current level of Rs 1,368.10 apiece to hit the target price pegged by the brokerage. It says that Infosys’ growth leadership within tier-1 is backed by surge in large deal wins, which is a key positive for revenue visibility in the near term. 

Tech Mahindra: Tech Mahindra is getting the benefit of scale and vendor consolidation in the communications vertical (Telefonica and AT&T deals are an example). The brokerage firm sees a 13.5 per cent upside in the Tech Mahindra share price from the previous close of Rs 1,008.70 apiece. It has revised its target price to Rs 1,145 apiece from Rs 1,110, earlier. The report noted that the communication vertical is expected to register high single-digit growth even without 5G and enterprise will grow as per industry average.

Mphasis: Maintaining the ‘buy’ rating to Mphasis, the brokerage firm has hiked its target price to Rs 1,800 from an earlier price of Rs 1,740. Mphasis will require a jump of 9.4 per cent from the current level of Rs 1,644.60 apiece to hit the price target. The brokerage firm said that the demand environment continues to be robust and the pipeline is up 50 per cent on-year, despite strong deal wins.

Teamlease Services: Earlier this month, Teamlease Services hit a new 52-week high of Rs 3,840 apiece on BSE. The brokerage firm sees a gain of 9.4 per cent from the previous close of Rs 3,519.65. HSIE believes that growth will be driven by recovery in demand in verticals like Auto, e-commerce, BFS and Consumer Durables; vendor consolidation; formalisation of jobs, and change in labour laws. 

Sonata Software: Sonata is a value-added reseller for Microsoft licences and has a 20-25% market share in India. It has a ‘buy’ rating with a target price of Rs 580, implying a rally of 19 per cent from the last traded price. The brokerage firm noted that domestic product services (DPS) will continue to register strong growth, led by strong demand for Microsoft, SAP, Oracle, and Adobe licenses. Moreover, partnerships with Google and Amazon will drive growth.

Mastek: Mastek has a target price of Rs 1,560, implying an upside of 28 per cent from last close. The domestic brokerage firm said that the growth outlook for the UK government remains positive. Various UK government departments are spending more on building cloud infrastructure and digitisation, post-Brexit. Mastek is now qualifying for larger deals along with Evosys.

(The stock recommendations in this story are by the respective research and brokerage firm. The Outlooker Online does not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)