IT index new growth driver on D-St! MindTree, Infosys among top 5 stocks to buy now

Looking for new leaders on D-Street? There is one sector which is hard to ignore — the IT space. The recent results from top IT majors have surprised the Street especially in times of COVID-19, and strong management commentary only added to the optimism. Key positives from the IT sector in June quarter earnings include healthy deal wins, a robust deal pipeline, and better-than-expected guidance for FY21. "This has driven 12-14 percent earnings upgrade for Infosys, HCL Tech and Wipro," Motilal Oswal said in a report. The brokerage firm increased the weight of the IT sector by 300 bps in its model portfolio. The NSE IT index has outperformed the Nifty by 20 percent on a YTD basis. The NSE IT index gained 10 percent YoY YTD (v/s the Nifty’s decline of 9.4 percent). IT seems relatively well-poised given the better earnings visibility coupled with the comfort on the balance sheet, FCF, return ratios, and payouts, suggest experts. “Various factors are boosting the growth of the IT industry such as economic necessities, technological advancement, and government initiatives like Digital India. Considering these factors, the IT industry can be expected to keep on growing. Therefore, investors can add these stocks to their portfolio for long term investment,” Gaurav Garg, Head of Research at CapitalVia Global Research Limited- Investment Advisor told Moneycontrol. Experts are of the view that the IT sector offers relative earnings comfort coupled with solid balance sheet, cash flow, RoE, and payout metrics in such current volatile and disruptive times. “Tier-I IT companies have best in class balance sheets, resilient business models, and excellent management pedigree, and yet valuations are not expensive,” said the Motilal Oswal report. Motilal Oswal has a buy recommendation on HCL Technologies, Infosys, L&T Infotech, MindTree, and Persistent Systems.

Technical/Expert View: Expert: Rajesh Palviya, Head – Technical & Derivatives Research Analyst, Axis Securities,Infosys reported Q1 earning numbers which were way ahead of street estimates. The IT major also gave full-year constant currency revenue growth guidance amidst the COVID-19 pandemic. The NSE IT index is trading near to all-time high level and in the recent past, IT stocks have shown consistent buying interest. Nifty IT has witnessed ‘V’ shape recovery. The Nifty IT chart pattern suggests that if it the index manages to give breakout above 17,000 levels then it would exhibit further upward momentum towards 17,600-18,000 level in the short term, while on downside 16,400-16,200 is likely to act as support in the short term. We advise one should use any corrective action as a buying opportunity to buy stocks in the IT space. Expert: Sumeet Bagadia, Executive Director, Choice Broking At the present level, IT sectors look good even though major IT stocks are trading at a high level. In a basic sense, the ongoing situation of the pandemic effect will encourage mostly MNCs and other large corporates to adopt work from home culture. Even on technical formation, major IT stocks like TCS, Infosys, HCL Technologies, Wipro and Tech Mahindra are looking good. One should adopt a strategy to invest at CMP and wait for a fall, and if it happens then again buy in 4 tranches with the ratio of 25 percent each of the investment amount. Expert: Rajeev Srivastava, Chief Business Officer at Reliance Securities We were positive on the sector and always maintained a positive stance as the sector has a strong pedigree, robust business model, high return ratios, and reasonable valuations. But, as we have witnessed a sharp up move over the past few weeks one should wait for some corrective price action to allocate fresh money and we remain positive on stocks like TCS and Tech Mahindra over the long term. Expert: Pushkaraj Sham Kanitkar, VP (Equities) at GEPL Capital The major flow for the IT Index has been the NASDAQ in the US hitting all-time highs, and which the Nifty IT too replicated in stride. The robust results further boosted the inflows in terms of the defensive sector. We feel one may still see upsides to the tune of around 5-7 percent from hereon. Hence, we would suggest a buy on dips strategy rather than going gung ho, on the trot. Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.