JM Financial analyst sees attractive buying opportunity in these IT stocks

Signs of bottom formation are emerging in the IT sector, said Abhishek Kumar, IT Services Research Analyst at JM Financial Institutional Securities, citing improving fundamentals and rare valuation opportunities.He said that six global peers, including Infosys, HCLTech, Capgemini and Cognizant, have all raised the lower end of their guidance this quarter — clear evidence that “the worst that some of these companies were fearing did not play out, nor do they expect it to play out this year.”

Valuations, too, are signalling an attractive entry point. Large-cap IT services companies are now trading at a discount to both Nifty and the S&P 500, a level Kumar stated has not been seen in the last five years. With rupee depreciation offering further support, this combination suggests meaningful upside potential.

Within the pack, midcaps remain the stronger growth leaders. Kumar prefers Mphasis and Coforge

describing the latter as “one of the cheapest midcap stocks on a Price/Earnings to Growth (PEG) basis” with a 30% earnings CAGR outlook over the next two years. Persistent also remains on JM Financial’s buy list, though valuation comfort makes Mphasis and Coforge the top picks.

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Addressing client concerns, particularly around Coforge’s exposure to Sabre, Kumar explained the recent guidance cut is unlikely to derail the deal ramp-up. He stressed that financially, Sabre is in a better position now, and “till now, we have not heard any impact of that on Coforge.”

For the entire interview, watch the accompanying video

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