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IT stocks have led the recent bull market rally with the Nifty IT index also rallied 73% in the last one year, surpassing major Nifty indices of banks, FMCG, auto, pharma as well as the Nifty 50 benchmark index. However, Nifty IT has seen some correction (8-10%) recently. 

ICICI Securities has suggested that investors use this temporary blip to invest further in Indian IT stocks as it expects IT spending to remain strong in the medium to long term on account of some structural changes happening on the ground.

The brokerage firm is increasing target multiple for TCS, Infosys, TechM, LTI and Persistent and maintaining their 'Buy' rating. It is also upgrading Wipro, HCL Tech, Mphasis and Coforge from ‘HOLD’ to ‘BUY’ by assigning higher target multiple. Furthermore, it has assigned HOLD rating to MindTree, from BUY earlier, as it believes growth is largely factored in current market price.

"Covid-19 has made industries across the globe bring about changes to adapt to the work from home environment with minimal disruption to their business models. This also led businesses to change their model from captive to outsourcing, which is expected to benefit Indian IT companies. It has already started with Infosys’ and TCS’ recent deal wins of the captive units of some of the businesses," ICICI Securities said in a recent note.

Recent Accenture guidance suggests the demand environment for Indian IT companies continues to be strong. In ICICI's view, it is not a quarter phenomenon but there are some structural changes happening on the ground that may bring cheer for Indian IT companies in years to come.

Though, the brokerage added that it does not rule out margin pressure on Indian IT companies in the near term but in the long term, strong revenue growth may help to tide over these costs.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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