JP Morgan's latest analysis indicates that IT stocks are currently trading at the upper end of their valuation bands, fuelled by expectations of better financial results and a potential bottoming out of earnings.
Infomation technology stocks have played a key role in driving gains on Dalal Street over the past few weeks.
New Delhi,UPDATED: Jul 4, 2024 13:29 IST
Information technology stocks have been in good form on Dalal Street over the past few weeks, outperforming broader indices such as the Nifty 50 by a significant margin.
According to global brokerage JP Morgan, the NIFTY IT index has surged ahead of the Nifty 50 by approximately 10% over the past month, marking a robust period for the sector.
JP Morgan's latest analysis indicates that IT stocks are currently trading at the upper end of their valuation bands, fuelled by expectations of better financial results and a potential bottoming out of earnings.
"The recent rally suggests that Q1 earnings results, whether they meet or miss expectations, could face significant market reactions, with a higher threshold set for companies that exceed forecasts," JP Morgan noted in their report.
Despite these optimistic indicators, JP Morgan maintains a cautious stance on immediate forecast upgrades.
They anticipate a minor improvement in Q1 results driven by substantial large deals and seasonal strengths typical of the period. However, the firm does not foresee widespread upgrades to earnings forecasts at this juncture.
JP Morgan predicts that large-cap IT firms will lead the growth charge, with expectations of around 2% growth for companies like Infosys and LTI Mindtree.
They foresee margin contraction for TCS due to recent wage hikes, while anticipating a sharp expansion in Infosys's margins attributed to client provision reversals.
In contrast, mid-cap IT companies are expected to experience more varied growth trajectories and potential margin declines, reflecting the diverse nature of the sector.
Highlighting their top selections within the Indian IT landscape, JP Morgan identifies Infosys, TCS, LTI Mindtree, Persistent Systems, and KPIT Technologies as prime investment opportunities. These companies are viewed favorably for their growth potential and strategic positioning in the market.
On the other hand, JP Morgan advises a more cautious approach towards stocks like Wipro, Tech Mahindra, Cyient, Mphasis, and Coforge, indicating potential challenges or lesser growth prospects compared to their top picks.
Published By:
Koustav Das
Published On:
Jul 4, 2024
English (US) ·