Over the years, perceptions of IT stocks have evolved, yet there remains a notion that large-cap companies like TCS, Infosys, and Wipro are the primary indicators of trends in the IT sector. However, this view is outdated. In the past five years, the emergence of machine learning, cloud computing, and other specialized segments has shifted the landscape. Smaller companies operating in these niche areas have demonstrated significantly stronger growth, even as industry giants like Infosys and Wipro face growth pressures. Today, Probably, investing in the not so well talked about IT stocks is like contrarian investing, which pays in the long term though in the short term one might feel that one is not doing the best thing.Contrarian investors a term often referred to on the street. But the fact is it is easier said than done. Was anyone investing in PSU stock four years back? Or for that matter in pharma stocks. They were being neglected by the street, some for the right reason, some just because of the fact that over the years a narrative had been built that PSUs are inefficient players. But the investors who took the contrarian stand, the last quarters have been good.
In real life it is not easy to go against the narrative. Let’s look at the sector which is today bearing the brunt of all negative news. It has been more than three years since the IT stocks have been under pressure. Not for a wrong reason, the bellwether companies have been planting a bleak picture about how things are panning out in terms of order book. So, if the management is not confident, how can the street be confident? But here one has to look into the track record of IT companies when it comes to given projections. Largely most IT companies tend to be cautious when it comes to giving future guidance, some of them have stopped doing it. So the news is all bad and the fact is opinion which is impacted largely by news is even worse today. There is an old saying on Dalal street. News and stock prices have an inverse relationship. When news is good, stock prices are bad and when news is bad, stock prices are good. This probably has played in the IT space more than anywhere else.
While there are good reasons to be cautious on large cap IT stocks. But it would be better to look at each IT company on an individual basis and their business model and strength and not with the same lens as the streets look at mega caps like TCS or Infy.
Especially the mid-cap stocks where the business is not just servicing a big client but operating in a niche area have been doing well. The best example is that of TATA Elxsi or a KPIT, which in the IT bull of 2020 to 2021, came from nowhere and created a good amount of wealth.
Some of them mid-cap IT companies are not well covered by analysts, not because of any other reason but the fact that the management of some of these companies are known to follow policy of not giving forward guidance and interact with everyone only in their concalls.
After witnessing correction in their valuations, some of the mid-cap software stocks are making a comeback though quietly. In a number of cases, their Q4 results were better than expected leading to a positive price reaction on the street. Also some of these stocks have seen an upgrade and expectations are that this trend will continue for two reasons, first that these companies are operating in verticals and part of technologies where growth is still robust.
Now a number of these companies work in that space only and hence for them things are still better than what most are predicting. The management of most of these companies are sounding confident on margins and expect the tailwind of deals of bigger size would be back soon. The optimism stems from the fact that digitisation is still far from over. So in coming quarters margins which were hit due rising employee costs might be once again witnessing some expansion as some of those issues have been taken care off with downsizing and lower hikes. Now these are stocks for contrarian investors, so there is a possibility that while the nifty jumps from one level to another, these stocks may underperform and one might feel one has taken a wrong decision. But then in contrarian investing one should be ready to feel low to be compensated later when the world figures out that things were not that bad.
The stocks collated with data from the latest Stock Reports Plus report dated June 23rd, 2024.
Persistent Systems Limited is a holding company engaged in the business of providing software products and technology services. The Company provides a range of services, including digital strategy and design, software product engineering, client experiences (CX) transformation, cloud & infrastructure, intelligent automation, enterprise information technology (IT) security and data and analytics. The Company serves various industries, including banking, financial services and insurance, healthcare and life sciences, industrial, software and hi-tech and telecom and media. The Company’s subsidiaries include Persistent Systems, Inc. (PSI), Persistent Systems Pte Ltd., Persistent Systems France SAS, Persistent Systems Malaysia Sdn. Bhd., Persistent Systems Germany GmbH (PSGG), Persistent Telecom Solutions Inc, Aepona Group Limited (AGL), Aepona Limited, Youperience GmbH (YGmbH) and Youperience Limited.
Cyient Limited is an engineering and technology solutions company. The Company specializes in geospatial, engineering design, analytics, network and operations solutions. Its Services segment consists of transportation, communication and utilities, portfolio of sectors and digital services and solutions. Its Design Led Manufacturing segment is engaged in providing electronic manufacturing solutions in the fields of transportation, communication and utilities, portfolio of sectors and digital services and solutions business units. The Company, through its subsidiaries in the United States, United Kingdom, Germany, Japan, Australia, Singapore and India, provides a range of services, including digitization of drawings and maps, photogrammetry, computer aided design/engineering (CAD/CAE), design and modelling, repair development engineering, reverse engineering application software development, software products development, consulting, analytics and implementation.
LTIMindtree Limited, formerly Larsen & Toubro Infotech Limited, is a global technology consulting and digital solutions company. The Company is engaged in the business of analyzing, designing, maintaining, converting, porting, debugging, coding, outsourcing and programming software and also providing information technology enabled services. Its services include cloud and infrastructure training, consulting, customer success, cyber security, data and insights, digital engineering, Disruptive software-as-a-service (D-SaaS), platform operations, intelligent automation solutions, and assurance and quality engineering. Its platforms include LTI Infinity, Fosfor, LTI Canvas, Mindtree NxT, Unitrax, REDaxis, iCEon, Advanced Smart City Operating Platform and Infinity Insights. Its LTI Infinity is a suite of engineering tools and processes, which helps clients with cloud lifecycle assessment and management. Its LTI Canvas is a software engineering platform.
Sonata Software Limited is a global technology company. The Company is primarily engaged in the business of delivering information technology (IT) services and software solutions. The Company’s primary segments are based on geographical areas and include Domestic (India) and International (Rest of the world). Its secondary segment comprises business segments, products and services. It provides solutions for travel, rail and airline companies by integrating technologies, such as Omni-channel commerce, mobility, analytics, cloud and enterprise resource planning. Its operations include software development, technical services and product marketing. Its software portfolio includes the Brick & Click Retail Platform, Modern Distribution Platform, Rezopia Digital Travel Platform, Kartopia E-commerce Platform, Halosys enterprise development automation Platform, CTRM Commodity Trading and Risk Management Platform and KODO- artificial intelligence (AI) Powered Customer Experience (CX) Platform.
Mphasis Limited is a information technology (IT) solutions provider specializing in providing cloud and cognitive services, applies technology to help enterprises transform businesses globally. The Company’s segments include Banking and Financial Services, Logistics and Transportation, Technology Media and Telecom, Insurance and Others. It uses its Front2Back transformation approach, which uses cloud and cognitive to provide personalized digital experiences to clients and their end customers. It provides a range of services, which includes application services, blockchain platform, business process services, cloud, cognitive, cyber security, digital, enterprise automation, infrastructure services, products engineering, XaaP (Everything as a Platform) services, and others. It serves various industries, which include banking-capital market, insurance, healthcare and life science, payments, hospitality, travel and transportation, energy and utilities, oil and gas and others.
Zensar Technologies Limited is a digital solutions and technology services company. It is engaged in providing a range of information technology (IT) services and solutions. It operates in two segments: Digital and Application Services (DAS) and Digital Foundation Services (DFS). The DAS segment includes custom applications management services that include application development, maintenance, support, modernization and testing services across technology and industry verticals. The DFS segment includes infrastructure management services, which consists of hybrid IT, digital workspace, dynamic security, and unified IT provider under managed service platform using automation, autonomics, and machine learning. It offers a range of services, including analytics, application transformation, digital foundation, digital experience, enterprise application, testing and unified digital commerce. It serves various sectors, such as manufacturing, retail and consumer services and insurance.
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