The IT sector has reported sturdy earnings for the September quarter. In a evaluate report, Motilal Oswal talked about that the Q2 outcomes have strengthened its ‘obese’ stance on the sector.
“Q2FY21 has seen sustained earnings momentum in IT, resulting in a healthy earnings upgrade for the second consecutive quarter. Management commentaries remained upbeat across the board. Lastly, a fresh round of dividends and buybacks provides a strong cushion for sustained re-rating, in our view,” the brokerage acknowledged in its report.
The Nifty IT has outperformed benchmarks in 2020 so far. The Nifty IT index has rallied over 35 p.c on this interval as in comparison with a 2 p.c fall in Nifty.
All constituents within the Nifty IT index have additionally given optimistic returns this yr with Mindtree main the pack, up 67 p.c. L&T Infotech was a detailed second, up 66 p.c in 2020. Meanwhile, Infosys jumped 44 p.c, HCL Tech added 44 p.c, Wipro rose 36 p.c and TCS superior 20 p.c on a YTD foundation.
The brokerage continues to take care of an ‘obese’ stance on the mannequin portfolio, and after the sharp run-up, has now changed Wipro with HCL Tech.
HCL Tech has a greater natural progress outlook over FY21–22 and trades at a 40 p.c low cost to TCS, providing a good margin for security, MOSL added.
However, it had lately downgraded Mindtree put up its stellar outperformance in 2020 YTD.
Going forward, the brokerage expects the relative earnings outperformance of the IT sector to maintain for the rest of FY21. Despite the current run-up, it believes the IT sector nonetheless trades at affordable valuations.
MOSL believes that sturdy relative earnings efficiency, coupled with resilient sector fundamentals, helps its continued optimistic stance on the sector.
COVID-19 has served as a tailwind for the Indian IT sector, with enterprises accelerating investments in digital transformation to remain resilient in a disruptive enterprise backdrop, it added.
Further, commentaries from IT firms additionally recommend sturdy deal momentum and powerful value management, with a number of firms upping their steerage, which stands out towards the in any other case tepid earnings progress seen in broader markets.
