Beating high expectations critical for further gains in midcap IT stocks

While the overall growth outlook is positive, there are headwinds for margins and valuations are at premium to large-cap IT firms

Strong demand, especially in North America, should mean good results for the information technology (IT) sector. However, continuing margin pressures and higher employee-related expenses will stem the rate of attrition. Indian IT services companies will rely upon rupee depreciation and higher efficiencies to maintain margins, while looking at continuing migration to Cloud to drive revenue growth.

Various analysts are expecting constant dollar sequential revenue expansions of between 3 per cent and 8 per cent in the third quarter (Q3) of 2021-22 (FY22) for mid-caps in the IT space.

Revenue growth is likely to be broad-based across geographies and verticals. There could be