Why have Tier-2 IT stocks left tech darlings Infosys, TCS & others feeling blue?
The sentiments around the IT sector remain weak on the deteriorating demand environment, which is expected to only pick up in the second half of fiscal 2024. Focus on cost efficiency, with companies cutting down on non-critical projects, and weak global macroeconomic conditions are expected to create pressure on the topline of these companies.
Amid this backdrop, tech darlings like TCS, Infosys, and Wipro have left investors gasping for returns. Infosys is down 11% this year, Wipro 1%, while TCS has risen only 1%.
Tech Mahindra, HCL Tech and MindTree have managed to gain between 11-19%, but interestingly, their upside seems dwarf in front of high double-digits to multibagger returns offered by some Tier-2 IT companies.Aurionpro Solutions, Nucleus Software Exports, Zen Technologies and Datamatics Global Services are some of the smallcap IT stocks that have turned multibaggers so far this year. Meanwhile, from the midcap IT space, Persistent Systems, Oracle Financial Services Software, and Tata Elxsi have also gained over 20%.What's driving investors to Tier-2 IT firms? Analysts believe rising smaller-sized deals, hopes of consolidation, and a smaller base of Tier-2 IT firms are some of the factors why investors are pivoting towards them.
IT companies are now not only addressing the needs of CIOs, F&A, and HR functions, but decision-making has now moved to different business units at the client’s end, increasing market opportunities. Deal sizes are getting smaller, allowing mid-sized IT companies to participate in them.
Mega deals now make up only 20% of ACV versus 40% two years ago. Further, Tier-2 IT companies have developed niche domain expertise and specialisation in new growth areas, which allows them to win
. Read more on economictimes.indiatimes.com
