Motilal Oswal Picks 7 Quality IT Sector Stocks, Recommends Buy For Robust Gains In 2023

1. HCL Technologies Limited

Motilal Oswal placed a buy on the stock of HCL Technologies with a target price of Rs 1,280 apiece for gains up 24%. The stock is currently trading at Rs 1,033.35 apiece on NSE. Its 52 week high is Rs 1,359.40 apiece and 52-week low is Rs 877.35 apiece, respectively. The stock has given 22.06% negative returns in 1 year. However, in 3 years it gave 77.65% positive return and in 5 years it gave 132.75% multibagger returns.

Brokerage's Views

• We expect the company to report ~5% QoQ revenue growth in CC terms.
• Margin is likely to see an uptick of 60bp QoQ aided by robust growth, Rupee depreciation and change in business mix.
• 3Q is seasonally a strong quarter for P&P while ER&D is expected to support growth for the services segment.
• Commentaries on the spending pattern, deal pipeline and demand environment are to be monitored.

 

2. Cyient Limited

The brokerage recommends buying the stock of Cyient with a target price of Rs 945 apiece, claiming an 18% potential upside. The current market price of the stock on NSE is Rs 802.20 apiece. Its 52 week high is Rs 1,084 apiece and 52-week low is Rs 720 apiece on NSE. It has given 25.6% negative return in 1 year. Whereas, it gave a maximum 84.07% positive return in the past 3 years. It gave 39.59% positive return in 5 years.

Brokerage's Views

• Expect 11.7% CC growth on a QoQ basis. Organic growth should remain strong at ~3.1%.
• Expect ~60bp QoQ improvement in margin in 3QFY23.
• Expect strong rebound in DLM business. Aerospace should see strong revival.
• The commentary on margins will be the key monitorable.

3. Infosys Limited

The brokerage recommended "buy" the stock with a target price of Rs 1,760 apiece for 18% potential gains. The current market price (CMP) of the stock is Rs 1,500 apiece on NSE. Its 52 week high is Rs 1,953.90 apiece and 52-week low is Rs 1,355 apiece. The stock has fallen 21.04% in 1 year. It has given 101.03% multibagger return in 3 years and 195.38% multibagger return in 5 years, respectively.

Brokerage's Views

• Expect CC revenue growth at ~1.5% QoQ, implying ~20bp of currency headwinds. The furloughs' impact is expected to be in similar line to last year's.
• The deal pipeline remains strong that is skewing more towards cost take-out small-size deals.
• Operating margin is likely to see an improvement of 10bp QoQ aided by margin levers after two consecutive wage hikes.
• We expect the company to maintain its guidance. IT budget allocation, deal TCV and attrition are the key things to be watched out for.

4. L&T Technology Services Limited (LTTS)

The brokerage has assigned a target price of Rs 4280 with a "Buy" tag. It sees 16% upside in share price, according to the given target price. It is currently trading at Rs 3717 apiece on NSE. It recorded its 52 week high at Rs 5,955.50 apiece and 52 week low is Rs 2,924.20 apiece, respectively. It has fallen 37.12% negative return in 1 year. In the past 3 and 5 years, it has given 146.25% and 226.91% multibagger returns, respectively.

Brokerage's Views

• Expect ~2% QoQ CC growth, which implies a currency headwind of ~10bp QoQ. Since the wage hike is behind, the operating margin is likely to be supported by Rupee depreciation.
• We expect the margin to see a 10bp QoQ improvement.
• 3Q is forecasted to see some furloughs impact on the discretionary part of the spend; telecom, hi-tech and medical devices are likely to see some softness.
• Forecast the company to maintain its revenue growth guidance to the tune of 15.5-16.5%. Deal pipeline, new deal wins and client budgets are the key monitorables.

5. Mphasis Limited

Motilal Oswal has assigned a "Buy" on the stock with a target price of Rs 2290 apiece for gains up to 16%. The current market price of the stock on NSE is Rs 1987.55 apiece. Its 52-week low is Rs 1,896.05 apiece and its 52-week high is Rs 3,479 apiece, respectively. It has fallen 41.46% in 1 year. In 3 and 5 years, it has given 124.94% and 177.68% multibagger returns.

Brokerage's Views

• Expect continued strength in the Direct business, although Digital Risk will continue to remain soft.
• Expect the margin to improve 20bp QoQ.
• Expect the decline to continue in the DXC business, although the pace of decline should start moderating.
• Outlook with regards to BFSI growth in FY23E remains a key monitorable.

6. Tata Consultancy Services Limited (TCS)

The brokerage recommends "buy" the stock of TCS with a target price of Rs 3,830 apiece. With the given target price, it claims a potential upside of up to 17%. It is currently trading at Rs 3293.10 apiece on NSE. Its 52-week low is Rs 2,926.10 apiece and its 52-week high is Rs 4,043 apiece, respectively. The stock gave 15.14% negative returns in the past 1 year and 49.79% positive returns in the past 3 years, respectively. It has given 148.12% multibagger returns in 5 years.

Brokerage's Views

• In CC terms, the revenue growth is likely to be at ~1.6% QoQ, implying ~20bp of currency headwinds. 3Q furloughs are expected to be higher than the earlier trend.
• We expect 60bp improvement in operating margin led by stabilizing supply constraints, Rupee depreciation and receding attrition.
• Deal pipeline remains strong while we expect deal TCV to be within the USD7-8b range.
• Client budgets, furlough impacts and deal wins are the key monitorables.

7. Zensar Technologies Limited

Motilal Oswal initiates a " Buy" on the stock for 18% gains with a target price of RS 250 apiece. The stock is currently trading at Rs 212.25 apiece on NSE. Its 52 week high is Rs 539 apiece and its 52 week low is Rs 201.50 apiece on NSE. Like the other stock on the list, this has also given a negative return of around 59.28% in the past 1 year. However, it has given 11.06% positive return in the past 3 years and 22.86% positive return in the past 5 years, respectively.

Brokerage's Views

• Expect revenue growth to decline ~4.5% QoQ that implies a currency headwind of 20bp. 3QFY23 is likely to see the extended furloughs and elongated sales cycle.
• Order bookings are likely to get impacted adversely by furloughs coupled with a slowdown in decision making and a cut down in discretionary spends.
• Despite 3Q softness, the operating margin is expected to see an improvement of ~110bp fueled by cost optimization and receding attrition rate.
• Outlook for the next year, demand environment and deal pipeline are the key monitorables.

Disclaimer

The stocks have been picked from the brokerage report of Motilal Oswal. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.