The gains in the Information Technology index and that in the small and mid-cap IT stocks continues to be the scene for some time now, though in today's and the previous trading session there was seen profit booking in the pack.
Performance of mid IT companies' in a nut-shell
|Mid cap IT stock||1 year gains||LTP|
|L&T Technology Services||146%||Rs. 3390.85|
|Oracle Financial Services||30.99%||Rs. 4045|
|Tata Elxsi||361.79%||Rs. 4230|
|Persistent Systems||274.35%||Rs. 2817.55|
Now as we have noted the performance of the mid-tier IT majors that have even quadrupled investors' wealth, we will understand whether there is room for more upside in these highly potential-drawing companies' in future course.
Mid-tier IT companies' prospects and tailwinds:
1. Business line:
These companies' are into areas where they have specialization unlike their larger peers. This gives them both a cost and competitive advantage. Say for instance, Mindtree typically caters to travel and hospitality vertical while L&T infotech has its forte in the BFSI and manufacturing space. Likewise, Coforge previously NIIT is more into offering aviation solutions.
- Companies including L&T Tehnology Services have become debt free for the first time in 5 years time.
- Mindtree has posted 10% revenue growth on a sequential basis that has been the best in 3 years.
- Mphasis also has a debt to equity ratio of 0.1 as at the end of FY21.
Scope of IT industry
IT industry is the breadwinner for millions of home in the country and with the outbreak of Covid everything has gone digital and in fact with the surging demand, IT industry in India is seeing an uptick in both hiring as well as the hike that is being offered to employees from the space.
IT spending by end users to increase to $18 billion in 2021
As we write, Gartner, a reputed research firm has said that it expects end user spending on IT to increase to $18 billion in 2021. This is an increase of over 10% in comparison to 2020. In 2020, spending on IT services slowed, but did not decline. While some digitalization projects were stalled due to IT budget contractions and economic uncertainties in 2020, 2021 is experiencing renewed interest in rapid digitalization from end-user organizations", said Arup Roy, research vice president at Gartner.
Notably as per the Gartner report, the IT sector comprises various areas/verticals namely consulting, business process services, infrastructure implementation and managed services, hardware support, Infrastructure as a Service (IaaS) and Application Implementation and Managed Services.So, while the spending shall see a boost for all of these areas only hardware support shall lag.
Why mid-cap IT stocks?
So, as there has been a case with Coforge with despite the highest exposure to tourism and aviation is making the killing with new high hit in today's trade, a number of tailwinds are favoring it such as institutional investors and Mutual funds bet on the stock. Likewise, with their niche domain expertise, mid cap IT stocks will continue to perform well going ahead even after standing firm amid the Covid 19 times.
The views expressed in the story need not be construed as investment advice. Investors need to do their own research based on their risk profile as stock market investments are risky.