Since analysts at JP Morgan downgraded their Indian IT sector stance on May 18, 2022, India’s IT performance has been volatile. Despite the recent sharp correction in IT stocks, Indian IT companies are still trading at around 40% premium to pre-Covid average multiples.
Even though the global brokerage remains underweight on the IT sector, it is overweight on only four Indians IT stock Which are Infosys, Mphasis, Tech Mahindra, Persistent Systems (PSYS).
“As per our analysis, the last three quarters have seen a rapid increase in the overall signatures. Lastly, our analysis of management commentary this earnings season highlights that demand/pipeline/order book details have changed from hyperbolic to positive-comparative, indicating further upside,” the note said. Is.
IT services remain a late cyclical industry and investors should take positive management commentary, noting the lack of foresight displayed at turning points in each of the previous cycles, according to the brokerage.
Management’s comments on demand, order book and pipeline are exhibiting a strong growth bias. However, description adjectives have gone down a notch and IT services companies have been cyclical of late and it is too late to see a slowdown in demand.
“Our projections for large deals were won and overall deals on an LTM basis have been sluggish over the past few quarters (see Figures 4 and 6). We believe this will reflect the slowdown in revenue growth during FY13.” J. P. Morgan Said in a note on Indian IT and ER&D services.
Earnings in Indian IT services are at risk from margin pressures and a possible growth slowdown. The main debate has been whether the stock has already baked into it, whether there are real options for India-only IT services investors, whether the sector is attractive to buy again, it added.
The views and recommendations given above are those of individual analysts or broking companies and not of Mint.