Top IT Sector Stocks to Invest

The Information Technology (IT) industry has been a driving force behind India's growth, delivering impressive returns even during the pandemic. However, the market is now facing some selling pressure, creating an air of uncertainty.
Despite the current market conditions, IT stocks still hold potential for long-term investors seeking profitability. For those looking to maximize gains, a shift towards value stocks trading at discounted prices might be a wise move. By embracing this approach, investors can position themselves for future growth and financial success. 

Important Considerations Before Investing in IT Sector Stocks in 2023

1. Diverse Service Offerings and Growth Potential:
When investing in IT stocks, consider the company's size and the range of services it offers. Look for businesses that cater to various industries like insurance, pharmaceuticals, finance, and more, as this diversification can contribute to the overall growth of the IT sector.
2. Financial Strength and Research & Development:
Evaluate the monetary achievements of IT companies and their commitment to research and development. Strong financials and a focus on innovation can impact the company's stock prices positively.
3. Sustainable Revenue Growth:
Look for IT companies with a track record of consistent revenue growth. A promising sign for 2023 is that many Indian IT companies are optimistic about achieving their yearly goals and projecting a 12 to 14 percent increase in sector-wide revenue. Investing in value stocks in the IT sector, is important consideration.
4. Global Revenue and Exchange Rates:
As an investor, be mindful of how IT companies generate revenue across different regions worldwide and consider the impact of the Indian rupee's exchange rate. Understanding the company's global revenue distribution can provide valuable insights into its overall financial health.
Investing in Top IT stocks in India requires careful analysis of these factors to make informed decisions. By considering the company's growth potential, financial strength, revenue prospects, and global presence, investors can position themselves for potential success in the dynamic IT sector in 2023. Followings are the Top IT companies in India with diverse services & one of the Indian IT companies with high revenue growth.

Overview of the Best IT Stocks in 2023

1. Tech Mahindra Ltd.

Key Highlights:

I. Q1FY24 Revenue growth of 3.55% YoY but declined by 4.08% sequentially.
II. EBIT declined by 36.48% YoY and 32.36% QoQ, with an operating margin of 6.77%.
III. PAT declined by 38.81% YoY and 38.03% QoQ, with a PAT margin of 5.35%.

Key Risks:

I. Challenges in the CME sector and macro uncertainty impacting revenue growth.
II. Reduction in operating margins due to revenue drop, increased wages, and client bankruptcy provision.
III.  Attrition rate and cyclical nature in 1-2 segments may pose challenges.

Financial Performance:

I. Revenue declined on a sequential and YoY basis, with Manufacturing and Technology segments witnessing growth.
II. EBIT margin declined YoY and sequentially due to revenue drop and one-time provision.
III. FCF to PAT at 126.3%, utilization rate at 87%, with a further expected improvement of 3%-4%.

Outlook:

I. Management optimistic about long-term growth, expecting deal wins to rebound.
II. Investment in New Age AI platform and Generative AI to drive future growth.
III. Focus on AI, 5G, Quantum computing, and cybersecurity to capitalize on digitalization demand, which makes it one of the promising IT stocks for long-term investors.

Tech Mahindra Ltd. Share Price

2. L&T Technology

Key Highlights:

I. Muted revenue in 1QFY24, down 2.9% QoQ (CC) after SWC acquisition adjustment.
II. Organic revenue growth of 0.6% QoQ (CC)/7.5% YoY (CC) missed estimates.
III. Management reaffirms FY24 revenue growth guidance of 20% YoY (10% YoY organic).
IV. EBIT margin declined to 17.2% QoQ due to SWC acquisition impact, in line with expectations.
V. Six $ 10m+ deal wins with one $ 50m+, indicating growth in deal TCV.

Key Risks:

I. Delay in execution of deals impacting revenue performance.
II. Persistent weakness in the semiconductor segment.
III. SWC's low-margin business affecting overall EBIT margin in the short term.

Financial Performance:

I. Reported revenue declined 2.9% QoQ (CC) but up 9.1% YoY.
II. Organic growth at 0.6% QoQ (CC) fell short of estimates.
III. EBIT margin at 17.2%, in line with expectations, and management aims for 17%+ in FY24.
IV. PAT at ₹ 3.1bn, down 8.5% QoQ. 

Outlook:

I. Expect strong 2Q growth with pick-up in execution of deals won in 1Q.
II. Management optimistic about growth, driven by a large deal pipeline.
III. Shift from China to India in the ER&D services industry and partnership with chip companies to drive incremental growth.
IV. Integrated SWC in 1Q, adding significant accounts and focusing on international operations, Which IT companies with strong research and development focus on.

L&T Technology Share Price

3. Wipro Ltd.

Key Highlights:

I. Q1FY24 revenue of ₹ 2,28,310 mn, up 6.05% YoY but declined 1.55% QoQ.
II. EBIT at ₹ 34,584 mn, up 12.08% YoY but declined 5.47% QoQ, with an operating margin improvement YoY.
III. PAT at ₹ 28,860 mn, up 12.78% YoY but declined 6.71% QoQ, with an improvement in PAT margin YoY. 
IV. Healthy deal wins with large deals totalling USD 1.2 bn and total booking TCV of USD 3.7 bn.

Key Risks:

I. Muted revenue growth in BFSI, technology, and communication segments.
II. Ongoing macroeconomic uncertainty affecting demand environment.
III. Discretionary spending cuts impacting revenue performance.

Financial Performance:

I. Revenue growth of 6.05% YoY but declined 1.55% QoQ in rupee terms.
II. Dollar revenue increased 5.70% YoY but declined 1.45% QoQ in constant currency (CC) terms.
III. EBIT margin improvement YoY due to productivity gains, higher utilization, and cost reductions.
V. Plan to invest $ 1 bn in AI over the next three years to enhance capabilities and innovation. This is one of the IT stocks with strong financial performance.

Outlook:

I. Strong deal wins and growth in key segments expected to continue.
II. Alignment with market needs and internal transformation to drive competitiveness.
III. Continued focus on AI and cloud technologies to yield positive outcomes.
IV. Management maintains margins through productivity enhancements and cost control measures.

Wipro Ltd. Share Price

Conclusion

Despite the current selling pressure in the IT market, Indian IT stocks present an attractive long-term investment opportunity for profitability. These stocks possess key attributes such as diverse service offerings, strong financial performance, sustainable revenue growth, global revenue distribution, and a focus on research & development. Notably, Tech Mahindra, L&T InfoTech, and Wipro stand out as three promising IT companies with positive revenue growth, successful deal wins, and significant investments in cutting-edge technologies. As a result, these companies are well-positioned for future growth and success in the dynamic IT sector throughout 2023.