6 Technology Stocks That Motilal Oswal Gives A Neutral And Buy Rating

Motilal Oswal has identified six stocks from the Information technology (IT) sector that shows potential growth. The brokerage has given these stocks a buy or neutral rating when it did an industry coverage.

The brokerage believes that the IT services stocks have significantly de-rated over the last year, owing to growth moderation due to a weak macro environment and historically high base valuations.

In the research report, the brokerage stated that for FY24 industry growth is expected to remain muted due to pressure in key client industries but is positive on the sector due to good long-term demand outlook and Tier-1 median P/E at 17x (1-yr forward) factoring in the near-term weakness.

Although the brokerage is constructive on long-term demand, it remains cautious about the near-term slowdown, likely caused by a reduction in discretionary spending and a weakness in selective pockets.

Motilal Oswal sees support for share prices of Tier 1 coverage from historically high payout yields (FY24/FY25 median yield at 4.2%/4.9%), having crossed the 4% mark in FY23 for the first time since FY18.

Besides, it is worth noting that the IT services companies have maintained consistent capital allocation policies and continued to return a substantial portion of their cash generation throughout the year. Among the tier-1 pack, TCS and Infosys have the best payout and have returned 90%-100% of their net income to shareholders. The brokerage expects the companies to follow a similar payout policy over FY24/FY25 as well.

Further, Motilal Oswal feels that the demand recovery is to come through 2HFY24, with a broad-based recovery in verticals which is currently going through a rough patch and severe pain. It would lead to better revenue visibility and earnings growth for the sector in FY25E. An expected recovery in H2FY24E earnings with attractive payouts should make the tier-1 pack preferable over tier-2. Thus, the brokerage remains selective in the space and views any correction in the preferred names as an opportunity to accumulate further. Motilal Oswal prefers TCS (top pick), HCLT, and INFO within our tier-1 IT coverage.

Given are the stocks of companies that Motilal Oswal has given a buy or neutral rating.

Disclaimer

The stocks have been picked from the brokerage report of Motilal Oswal. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.