6 Midcap IT Stocks Sharekhan Has A Buy Ahead Of Quarterly Numbers

Markets have been consolidating in a range and with crude oil prices plunging, we are seeing a renewed interest in equities. Here are stocks that Sharekhan has a buy on, ahead of quarterly numbers of IT companies.

Sharekhan has a buy call on the stocks of Birlasoft, Coforge, L&T Infotech, L&T Tech, Persistent Systems, Tata Elxi.

Demand outlook remains robust for sector

"We believe demand environment continues to remain strong, given increasing tech spends on both growth and transformation initiatives, higher outsourcing due to increasing focus on cost-saving programme, and investments in new areas (including ESG, IoT, AI, 5G, and Cybersecurity). However, we admit that rising macro concerns along with potential recession in the US can lead to trimming down of tech spending going ahead. Any prolonged slowdown in the global economy's growth would result in reduction of discretionary tech spending or delay in decision making or deferrals of existing projects, which would ultimately impact the growth rate of IT services companies," Sharekhan has said in its report.

IT index down sharply

The stock price of Indian IT companies has corrected significantly on YTD basis, with CNX IT Index (down 28%) underperforming benchmark indices (Nifty down 11%) by around 17%. The sharp de-rating of valuation multiple was due to concerns on deteriorating macro. However, we expect Indian IT companies to sustain its double-digit growth momentum in the medium term, given the underlying need for compressed digital transformation across industries. "Further, Indian IT companies continue to remain favourable among enterprise clients even in case of spending reprioritisation due to growth slowdown or renewed focus on cost efficiencies in an adverse macro environment. Infosys and HCL Tech are our top picks in the large-cap space, while PSL and Coforge are our preferred picks in the mid-cap space," the brokerage has said.