IT Sector: Between midcaps and largecaps, what should you pick? Here's what experts suggest
Coforge was the top loser in the IT space in 2024 YTD, down 28 percent, followed by LTIMindtree, down 26.5 percent. Meanwhile, other mid-cap IT stocks, Mphasis, L&T Tech, Persistent Systems also shed 17 percent, 14 percent and 8.6 percent, respectively. Among largecaps, HCL Tech fell the most, over 10 percent, while, Infosys, Wipro, and Tech Mahindra lost 7.8 percent, 3.5 percent, and 1 percent, respectively.
TCS was the only IT stock in the green in 2024 YTD, up 3.2 percent. While the current trend is more positive for largecap IT, will it remain the same in the long term? Experts advise between mid-cap IT and large-cap IT, where you should invest for long term. Most of the companies within Nifty IT should give double-digit returns over the next 12 months. Between large and mid IT, midcaps offer higher returns despite volatility.
Tier-II companies have the building blocks to sustain the growth momentum in the medium term but the entry valuations are unfavourable. Tier-I valuations are favourable but earnings upgrade is limited. Hence, we prefer restructuring stories and Tech Mahindra continues to be our preferred stock pick.
In Q4FY24, Indian IT companies have extended their outlook for weak demand and macro uncertainty, leading to the reset of both growth and margin expectations for FY25. Reset led to muted growth guidance for all and a weaker margin outlook for select companies. Recovery hopes have been pushed back to FY2026.
However, on the other hand, stock price corrections in the past few months have made valuations more palatable. Infosys is our top pick followed by TCS and HCLT. We like Cyient among the mid-tier.
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