6 Midcap IT Stocks To Bet On For Gains Up To 47%

It's time of extremely volatility in the markets right now. Markets are looking vulnerable to a downside, which is leaving many on the sidelines. Here are 6 midcap stocks that brokerage firm, Emkay Global is betting on.

Revenue growth strong

According to Emkay Global, the revenue growth momentum was strong in a seasonally soft quarter (Oct-Dec) for IT companies, driven by a broad-based secular demand environment.

"We believe that robust broad-based demand and a healthy deal intake/pipeline provide good near-term revenue visibility.

Tier-1 companies' margins were flat to lower sequentially and lower on a YoY basis due to supply-side challenges. Barring PSYS, Tier-II IT Services companies reported expansion in their EBITM sequentially amid tight labor markets," the brokerage has said.

Tier-II IT companies outperform

The Tier-II companies outperformed Tier-I peers in sequential revenue growth and margin, according to Emkay Global.

"Margin expansion was aided by revenue growth-led operating leverage, offshore shift, and productivity improvement, which offset cost inflation due to tight labor markets. We roll forward our target prices to Mar'24 and raise CoE assumptions, considering an up tick in interest rates. We upgrade Wipro Ltd to a BUY. Our pecking order is Infosys, Wipro, Tech Mahindra , HCL Technologies and TCS among Tier-1 names, and Persistent, Mphasis, ROUTE, Birla Soft, eClerx Services and FSOL in mid-caps," the brokerage has said.

Buy these 6 midcap IT Stocks, says Emkay Global

Company	Current market price	Target price	Gains %
Route Mobile	1510	2150	43%
Firstsource	123	180	47%
Birlasoft	417	530	27.10%
eClerx	2106	2620	24.40%
Persistent	3927	4600	17.10%
Mphasis	3142	3650	16.50%

BFSI Verticals see a good growth

As per Emkay Global, the management commentary across companies, in the BFSI vertical saw good growth momentum in Q3 and the demand outlook remains healthy as banks look to continue their digital transformation and the retail vertical is seeing increased client spending on initiatives such as omnichannel commerce, consumer experience, supply chain transformations and large scale cost take outs.

"We expect the revenue growth momentum to remain intact in FY23, led by secular broad-based demand trends and healthy deal wins. The pricing environment remained stable, with clients becoming more amenable for rate increases for projects involving niche talent; also the clients are agreeing to COLA clauses in the deals unlike in the past," the brokerage has said.

Good Returns take on IT companies

We at goodreturns.in also believe that IT companies would do well in the coming days. However, we are not recommending any stocks as such, given the increase volatility in the markets these days. Some of the above mentioned companies by Emkay Global have a good track record of increasing profits as also dividend payouts. However, as usual, our worries in these markets is the increased volatility. At such times it is advisable to stay on the sidelines and buy into the market on declines only.

In the more short term our take is that the markets would consolidate at these levels and only move higher as structurally nothing has changed, though the only worries right now is on inflation.