India’s information technology (IT) sector is showing early signs of revival after several muted quarters, with the latest Q2 results bringing cheer to investors. Shares of top IT companies such as TCS, Infosys, HCLTech, and Tech Mahindra have seen gains following stable earnings, improved deal wins, and management optimism about global demand recovery.
However, experts suggest that while the sector looks promising in the short term, investors should take a cautious approach and focus on selective stocks that show consistent growth potential.
IT SECTOR RECOVERY PICKS UP PACE
According to market analysts, the second quarter results of major IT firms have shown stability in revenue and profits after months of sluggish growth. The demand for digital transformation, AI-led services, and large deal renewals have provided some relief to the industry.
Shailendra Bhatnagar, Chief Analyst & Editor – Markets at Business Today Television, said that the recent performance of IT stocks validates what experts have been expecting for weeks.
“Absolutely, but you first heard it on India Today TV, because about a week ago, we had marked Nippon India ITB as the safest thing to buy. And that's turning out to be a great investment at current levels. IT will gain because many mutual funds have bought into these beaten-down valuations for the next three months or so. It is going to be a party for IT. Again, consult an independent financial advisor if you get into ITBs,” Bhatnagar said.
The sector, which had been under pressure due to weak client spending from the US and Europe, is now seeing renewed interest from investors as growth appears to be stabilising.
TECH MAHINDRA, PERSISTENT SYSTEMS LEAD EARNINGS ACTION
Tech Mahindra’s quarterly results showed that the company’s restructuring efforts are beginning to pay off, with its focus on cost control and large deal execution. Similarly, Persistent Systems reported an increase in profit, highlighting strong demand from its key verticals.
Sharad Avasthi, Head of PCG Research at SMIFS Limited, said that the overall performance of IT firms indicates that deal sizes continue to expand even if topline growth remains steady for now.
“I think most of the numbers are really showing one common theme — the deal size continues to grow. The new larger deal events are continuing to grow. Though this quarter we do not have much optimism in the numbers, they are more or less stable at the top line and bottom line level,” Avasthi said.
“Particularly for Tech Mahindra, one thing that we are waiting for is the BFSI ramp up. Some business details show progress there. Most probably, as that trajectory continues, next quarter onwards we’ll have better numbers from the IT pack. The business around the US has not shown much improvement this quarter, but that should start reflecting from the next one. Valuation-wise, I think these are comfortable levels to look at IT stocks,” he added.
WHERE TO INVEST WITHIN THE IT PACK
With several IT majors reporting mixed performances, investors are looking for clarity on which companies could lead the next leg of growth. Avasthi believes that while top-tier IT stocks remain reliable, some mid-sized firms could deliver higher returns.
“Within the front line, I think I’m more confident with Infosys. At these valuations, I would be very happy buying into it. Over the next six to seven months, as the mood improves, the forward numbers will substantially improve,” he said.
“In the smaller names, Cyient Limited looks promising. Most of the reorganisation there will play out over the next six to nine months, so that could be one spot where you could see a lot of improvement in the days to come,” Avasthi noted.
INVESTOR OUTLOOK REMAINS OPTIMISTIC
Despite global economic uncertainties, analysts believe that Indian IT companies are well-positioned for long-term growth due to their strong balance sheets, focus on automation, and expanding service portfolios in artificial intelligence and cloud solutions.
However, they advise investors to focus on companies with consistent order inflows and diversified client bases. Experts also recommend monitoring the recovery in US and European markets, as these regions contribute significantly to Indian IT revenues.
With large deal momentum picking up, improving margins, and valuations at reasonable levels, the coming quarters could mark the beginning of a steady recovery for the IT sector.
(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)
