In past one month, the IT index has outperformed the market by surging 5% as compared to 2% decline in the benchmark indices. The mid-and-smallcap IT stocks like Mindtree, Hexaware Technologies, Sonata Software, Mastek and Zen Technologies have rallied more than 10% during the period.
As per an ICRA note, Indian IT Services companies are expected to register compounded annual growth rate (CAGR) in mid-to-high single digits for the period FY2017-2020 estimates.
“The growth of Indian IT Services companies is impacted by lower demand led by uncertain macro-economic environment, lower deal sizes in digital technologies, cloud adoption and high competitive intensity from local as well as international players. Future growth will be supported by higher spend on digital technologies, continued cost benefit offered through outsourcing model and market share gains,” Gaurav Jain, Vice President, ICRA said.
Indian IT Services companies are in the midst of re-orienting their business models focusing more on higher end services such as IT consulting & emerging technologies (digital) and have made considerable progress so far, though they still lag behind international peers. We expect large Indian IT companies to grab a higher share of the digital services space over the next three years, added Jain.
Mastek, the largest gainer among the IT pack, gain 12% in past week. In past one year, the stock zooms 205% against 16% rise in the Sensex.
“Mastek has built an impressive sales engine with its revenue in the last three quarters clocking a 6.6% CQGR, ~1.8% due to cross-currency tailwinds (GBP USD). It believes that these growth rates are sustainable as both the US and UK continues to generate growth. Its $90.9m order book suggests 42% visibility to our estimates (assuming 1.5 years of visibility), in sync with past performance. Revenue could touch $164m by FY20, and $200m potentially through acquisitions,” analysts at Anand Rathi Share and Stock Brokers said in company update note. The stock however, trading above analysts target price of Rs 520.