Motilal Oswal has turned bullish on India’s IT services sector, predicting a potential recovery after a prolonged period of reduced discretionary spending. The firm expects significant upside in leading IT stocks, with projected gains of up to 26%. MOSL’s top picks for the sector include HCL Technologies, LTIMindtree, and Persistent Systems, among others.
Top picks:
HCL Technologies: Target Price (TP) of ₹2,200, representing a 26% upside.
LTIMindtree: TP of ₹7,400, reflecting a 20% upside.
Persistent Systems: TP of ₹6,300, forecasting a 22% upside.
Coforge: Upgraded to ‘Buy’ with a TP of ₹8,100, implying a 25% upside.
Motilal Oswal does not have any ‘sell’ recommendations for IT stocks and maintains ‘buy’ ratings on other key players, including TCS, Infosys, L&T Technology Services (LTTS), and Cyient. Meanwhile, it holds ‘neutral’ ratings on Wipro, Tech Mahindra, Mphasis, and Zensar Technologies.
Sector recovery led by key verticals
According to MOSL, the recovery in the IT services sector is expected to be driven by three major verticals: Healthcare, Manufacturing, and BFSI (Banking, Financial Services, and Insurance). Healthcare, in particular, faces the least threat of insourcing through Global Capability Centers (GCCs), while BFSI is seeing some positive effects from rate cuts. However, BFSI’s recovery remains challenged by a significant insourcing threat, limiting its full potential.
Company-specific highlights
HCL Technologies: Its higher exposure to the healthcare sector positions it favorably compared to its peers.
LTIMindtree: Known for strong data engineering capabilities, LTIM is well-positioned to capture pre-Generative AI (GenAI) spending. However, margins remain a potential risk.
Persistent Systems: With a strong presence in high-growth verticals such as healthcare and BFSI, MOSL expects Persistent to deliver over 21% EPS compound annual growth rate (CAGR) from FY24 to FY27.
Coforge: MOSL’s upgrade of Coforge is based on a valuation rerating, with its price-to-earnings (P/E) multiple being revised to 38x, up from 30x.
