Coforge, Mastek, and Birlasoft are among of Sharekhan's top midcap IT companies to purchase ahead of Q2 results

 Coforge, Mastek, and Birlasoft are among of Sharekhan's top midcap IT companies to purchase ahead of Q2 results

IT service businesses have begun to exhibit a little outperformance on a one-year basis after being mostly ignored by the wider market index owing to the problematic macro environment, with Nifty IT Index rising over 17%, surpassing benchmark indices Nifty 50 which is up about 13%.

Select well-diversified tier-2 firms may continue to profit and show resilience even if the macro-overhang persists and might have an impact on the sector in the near future due to rising cost take-out transactions favoring tier-1 companies, according to experts at brokerage company Sharekhan. 

Select well-diversified tier-2 firms may continue to gain and show resilience even if the macro-overhang persists and might negatively impact the IT industry in the near future due to rising cost take-out transactions favoring tier-1 companies, according to experts at brokerage company Sharekhan.

Sharekhan's top selections in the midcap IT sector are Persistent Systems, Coforge, Mastek, and Birlasoft.

Sharekhan's top selections in the midcap IT sector are Persistent Systems, Coforge, Mastek, and Birlasoft.

IT service businesses have begun to exhibit a little outperformance on a one-year basis after being mostly ignored by the wider market index owing to the problematic macro environment, with Nifty IT Index rising over 17%, surpassing benchmark indices Nifty 50 which is up about 13%.

Select well-diversified tier-2 firms may continue to profit and show resilience even if the macro-overhang persists and might have an impact on the sector in the near future due to rising cost take-out transactions favoring tier-1 companies, according to experts at brokerage company Sharekhan. 

"We anticipate that long-term digital transformation activities will gradually resume as economic headwinds begin to ease after peaking in the next quarters. However, meaningful outperformance is likely to be postponed after the current surge since concerns about macros are still there in the short run. According to a Sharekhan analysis, "We continue to support a Neutral rating on the industry and suggest selective investing in the favored options.

While tier 1 companies are anticipated to report constant currency (CC) revenue growth of -0.4% to 1.1% QoQ in the second quarter of FY24, the brokerage firm anticipates continued uncertainty to lead to another muted quarter in a seasonally strong quarter for tier 2 companies, with CC revenue growth of 1.5% to 4.4% QoQ. 

Sharekhan's top selections in the midcap IT sector are Persistent Systems, Coforge, Mastek, and Birlasoft.

TP: 6,000 Persistent Systems | Buy

The ramp-up of transactions is projected to help Persistent Systems record sequential revenue growth at 3.1% in CC terms in Q2FY24, offsetting decline in the financial sector vertical. 

According to Sharekhan research, the company's EBIT margin is anticipated to decrease by around 90 bps QoQ, with pay increases being somewhat offset by operational efficiency.

The stock is given a 'Buy' recommendation by the firm, with a target price of $6,000.

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6,200 Coforge | Buy | TP

According to Sharekhan, Coforge is anticipated to achieve sequential revenue increase of 2.8% in CC terms, helped by a ramp-up of agreements. 

After a steep fall in Q1FY24, EBIT margin is projected to increase by around 190 bps QoQ in the July–September 2023 quarter thanks to operational savings.

Coforge is the subject of a 'Buy' call from Sharekhan with a target price of $6,200 per share, which would represent a gain of more than 19% from Friday's closing price.

TP: $2,400 Mastek | Buy

Due to the purchase of BizAnalytica, Mastek is anticipated to record sequential revenue increase of 4.4% in CC terms. In the quarter ending September 2023, the company's net profit is anticipated to increase 11% sequentially to 78 crore. Around 60 bps QoQ EBIT margin drop is anticipated.

The stock is given a 'Buy' recommendation by the firm, with a TP of $2,400 per share.

Buy Birlasoft | TP: 535

The ramp-up of transactions is expected to drive a 1.9% sequential growth in Birlasoft's revenue during the second quarter of FY24. Due to operational efficiency, the company's EBIT margin can remain unchanged. However, a 2.1% QoQ decline in net profit is anticipated.

The company has a 'Buy' recommendation from the firm, and it has a 525 per share target price.