IT shares in demand; Coforge up 6% as Motilal Oswal upgrades stock to 'Buy'

The IT sector is on the cusp of a mild but possibly sustained recovery in client spending, and the impending rate cut cycle should add to the sector tailwinds, according to MOFSL.

Shares of information technology (IT) companies are in demand, with their shares having rallied up to 6 per cent on hopes of a recovery.

The IT sector is now on the cusp of a mild but possibly sustained recovery in client spending, and the impending rate cut cycle should add to the sector tailwinds, according to analysts.

Coforge, LTIMindtree, Mphasis, Persistent Systems, L&T Technology Services (LTTS), Wipro, HCL Technologies, Tech Mahindra, Infosys and Tata Consultancy Services (TCS) have rallied in the range of 2 to 6 per cent in Tuesday's intra-day trade. 

At 01:55 PM, the Nifty IT index, the second largest gainer among sectoral indices after Nifty Media, was up 2.3 per cent, as compared to the 0.74 per cent rise in the Nifty 50.

The IT services sector could be on the cusp of a recovery after enduring a prolonged period of discretionary spending cuts, Motilal Oswal Financial Services (MOFSL) said in its tech sector report.

"As we look ahead to the next 2-4 years, the harsh winter appears to be behind us, and the foundations for a sustained revival in the flow of business and smaller deals are being laid," the brokerage firm stated.

The interest rate regime in the US, the division of work between global capability centres (GCCs) and service integrators, and the inflection point for 'Moonshot' or 'Low-ROI' investments are key factors that will determine the course of a recovery from here on, according to MOFSL.

The US Federal Reserve's interest rate policy is a crucial determinant of spending revival on technology for US firms. The rate cuts could fuel a recovery in areas such as capital markets and mortgage originations in BFSI, as well as help reduce the interest rate burden for capital-intensive sectors, freeing up funds for technology investments, the brokerage firm noted.

Among individual IT stocks, Coforge hit a record high of Rs 6,872, as it rallied 6 per cent on the BSE in Tuesday’s intra-day trade. The stock has surpassed its previous high of Rs 6,840 touched on February 19, 2024.

MOFSL has given a ‘Buy’ rating to the stock, with a target price of Rs 8,100 per share. The brokerage firm believes Coforge can leverage synergies from its recent acquitision, Cigniti, while healthy growth in its executable order book bodes well for its core business.

The brokerage firm further estimate HCL to lead revenue growth among large caps over the next three years, driven by its resilient portfolio and engineering services.

MOFSL added that its positive outlook on LTIMindtree is based on its best-in-class offerings in data and ERP modernisation, with a recovery in US banks' discretionary spending expected to further support its growth.

Meanwhile, Persistent Systems, with its strong product engineering background, remains the fastest-growing IT services company in the brokerage firm's coverage, and according to it, the company is well-positioned to benefit from long-term GenAI investments, it added.