“If a stock goes up 30 or 40 times in ten years, it has to have been grossly underpriced to begin with.” - Bill Miller
IT stocks made a tremendous comeback on December 14 session riding on hopes that the US economy has managed to avert a recession, and that big deal wins should resume from large clients. A quick analysis of Nifty 50 stocks shows that IT stocks have seen the maximum FII selling since interest rate hikes began, so they are bound to be the biggest beneficiaries when the FIIs return. Midcap IT firms outperformed their largecap peers on December 14 on heavy trading volumes.
But not everyone shares the optimism. Kotak Institutional Equities says that most enterprises are still focused on cost reduction and the trends do not indicate the possibility of a recovery in discretionary spending in the first half of 2024.
Mastek (Rs 2585| +6.9%)
Bull case: Consistent improvement in orderbook and active client addition. Compared to peers, it has the lowest PE ratio. Stock has been a multibagger with 450 percent returns in a five year period and can further ride the smallcap rally
Bear case: Revenue declined in manufacturing vertical in Q3. Revenue from Middle East region also declined sequentially. Could be a dampener for overall topline, if the trend continue
Mphasis (Rs 2,609.9, +7.6%)
Bull case: The company got the highest exposure to the BFSI vertical among the major Indian IT companies and thus stands to be the biggest beneficiary when rate cycle turns.
Bear case: The company takes longer to convert deals to revenue, as flagged by the management in several concalls.
LTIMindtree (Rs 5844.3, +3.79%)
Bull case: The newest addition to the Nifty 50 is ‘slowly turning from a boy to men’. Analysts at Nuvama say that it can now participate in larger deals and gets a seat at the table.
Bear case: Higher valuation compared to more established IT names in the Nifty 50. Big-ticket exits from the company recently.
Nazara Technologies (Rs 859.2, +0.51%)
The stock gained over 4 percent in five days. The company's preferred acquisition targets in real money gaming are likely to be in the poker or rummy space
Bull case: As we move towards Digital India, new-age tech companies like Nazara are expected to be the next wealth creators. Domestic mutual funds have upped their stake in the last quarter
Bear case: Institutional investors are unwilling to make fresh investments into the real money gaming space given the threat of retrospective taxes and the ambiguity around new taxation.
BHEL (Rs 181.50, +1.03%)
The company has partnered with the Ministry of Heavy Industries to develop technologies in hydrogen value chain and Industrial Internet of Things (IIoT) solutions.
Bull case: Order intake growth was nearly flat for the last two years but has picked up fast in FY24. UBS says that BHEL is prime beneficiary of the expanding defence manufacturing ecosystem.
Bear case: While there's no chatter of Government divestment, it remains a key overhang for PSU stocks. Revenue concentration risk as defence contributes almost 90 percent to topline
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