Stock picks: Coforge, Mastek, Birlasoft among Sharekhan’s preferred midcap IT stocks to buy ahead of Q2 results
- While the macro-overhang continues to persist and may weigh on the IT sector in the near term with increasing cost take-out deals favouring tier-1 companies, select well-diversified tier-2 companies could continue to benefit and display resilience, analysts at brokerage firm Sharekhan said.
After being largely overshadowed by the broader market index due to the plaguing macro environment, IT service companies have started to show a slight outperformance on a one-year basis, with Nifty IT Index gaining over 17%, outperforming benchmark indices Nifty 50 which is up around 13%.
While the macro-overhang continues to persist and may weigh on the sector in the near term with increasing cost take-out deals favouring tier-1 companies, select well-diversified tier-2 companies could continue to benefit and display resilience, analysts at brokerage firm Sharekhan said.
“We believe long-term digital transformation programs will return gradually as macro headwinds start waning after peaking out in the next couple of quarters. However, with apprehensions about macros persisting in the near term, material outperformance is likely to be delayed, following the recent rally. We continue to advocate a Neutral rating on the sector and advise selective investment in the preferred picks,” a report by Sharekhan said.
Meanwhile, in the second quarter of FY24, the brokerage firm expects continuity of uncertainty to result in another muted quarter in a seasonally strong quarter for tier 1 companies, which are expected to report constant currency (CC) revenue growth of -0.4% to 1.1% QoQ; while few of the select outperforming tier 2 companies may witness some moderation, with CC revenue growth of 1.5% to 4.4% QoQ.
Among midcap IT stocks, Sharekhan’s preferred picks in the sector are Persistent Systems, Coforge, Mastek, and Birlasoft.
Persistent Systems | Buy | TP: ₹6,000
Persistent Systems is expected to report sequential revenue growth at 3.1% in CC terms in Q2FY24, aided by ramp-up of deals, offset by weakness in the financial service vertical.
The company’s EBIT margin is expected to decline by around 90 bps QoQ, impacted by wage hikes, offset by operational efficiencies, according to Sharekhan analysis.
The brokerage has a ‘Buy’ rating on the stock with a target price of ₹6,000 per share.
(Exciting news! Mint is now on WhatsApp Channels 
Coforge | Buy | TP: ₹6,200
Coforge is expected to report sequential revenue growth of 2.8% in CC terms, aided by ramp-up of deals, Sharekhan said.
EBIT margin in the July-September 2023 quarter is likely to improve by around 190 bps QoQ, aided by operating efficiencies, following the sharp decline in Q1FY24.
Sharekhan has a ‘Buy’ call on Coforge with a target price of ₹6,200 per share, implying an upside of over 19% from Friday’s closing price.
Mastek | Buy | TP: ₹2,400
Mastek is expected to report sequential revenue growth of 4.4% in CC terms, aided by BizAnalytica’s acquisition. The company’s net profit is expected to rise 11% sequentially to ₹78 crore in the quarter ended September 2023. EBIT margin is expected to decline by around 60 bps QoQ.
The brokerage has a ‘Buy’ rating on the stock and a TP of ₹2,400 per share.
Birlasoft | Buy | TP: ₹535
Birlasoft’s revenue is likely to grow 1.9% in CC terms sequentially during Q2FY24, led by ramp-up of deals. The company’s EBIT margin may stay flat, aided by operational efficiencies. However, its net profit is expected to drop 2.1% QoQ.
The brokerage has a ‘Buy’ rating on the stock with a target price of ₹525 per share.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
Catch all the Business News , Market News , Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
- Top Gainers
- Top Losers
- 52 Week High