The information technology sector has been the star performer in the stock markets, aided by the pandemic, which brought increased focus on digitalisation by companies and lowered operating costs due to work from home.
Midcap IT company Mindtree is one of the biggest gainers in the segment, with its share price more than doubling in the current calendar year, outperforming the S&P BSE Sensex (up 20.5 percent) and the BSE IT index (up 40 percent).
The stock has also outpaced larger rivals Tata Consultancy Services, Infosys, Wipro, Tech Mahindra and HCL Technologies.
Other key reasons for Mindtree’s outperformance were its strong order book, healthy revenue growth and stable margins.
“The IT sector has been consistently performing well with continuous positive momentum,” said Ashish Biswas, head of technical research at CapitalVia Global Research. “The main reason behind the positive momentum and healthy revenue growth are strong order bookings, broad-based revenue growth and stable margins.”
Another reason for the company’s healthy revenue growth was the minimal impact of the second wave of Covid-19 on the sector as work was easily managed from home.
Experts said the momentum led by strong fundamentals in the sector is expected to continue for Mindtree and they advise investors to hold the stock for the long term.
“We can strongly believe in the further growth of the IT sector. Due to Covid, a lot of companies’ revenues declined and forced them to transfer jobs to developing countries where the charges are low. This has benefited the company and hence helped them expand their customer base and increase the revenue. This pattern is likely to continue,” Biswas said.
He expects the Mindtree share price to reach Rs 4,070 in the next three to six months. The stock closed at Rs 3,626.80 on the BSE on August 31.
Mindtree, with a global client base, is engaged in IT consulting and implementation services, focusing on the banking, financial services and insurance (BFSI), retail, travel and hospitality segments.
The Larsen & Toubro group company has delivered robust growth in the past few quarters and looks promising going ahead on the basis of large deal wins across geographies, client mining, traction in digital technologies, cost rationalisation and margin expansion.
The software services provider’s profit grew 8.2 percent sequentially to Rs 343.4 crore in the first quarter of FY22, while revenue climbed 8.6 percent to Rs 2,291.7 crore. It had orders worth $504 million at the end of June, a 34 percent sequential increase and its highest ever.
“The stock has given 3x gains to investors in the past one year. Technically, the counter may witness some profit-booking as it is trading in the overbought zone and sector rotation in the market is anticipated, therefore fresh entry is not recommended at current levels,” said Sandeep Matta, founder of TRADEIT Investment Advisor.
According to Matta, existing long-term investors can continue to hold the scrip for a target of Rs 3,945 and keep a stop-loss at Rs 3,367 on a closing basis.Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.