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Best Performing IT Stocks in India 2022 – Kuvera

Asefa Hafeez
best-it-stocks-india-2022

One of the most important industries in India and a major source of export earnings is the information technology sector. By 2025, the industry is anticipated to contribute roughly 10% of GDP, up from its present 7.7% share. India now leads the world in providing IT services. The availability of highly skilled and reasonably priced labour gives the nation an advantage. India is the top sourcing country in the world, accounting for 38% of the BPM sourcing market and roughly 55% of the estimated USD 185–190 billion worldwide service sourcing market.

 

Governments all over the world have imposed travel restrictions in response to the COVID-19 outbreak in an effort to stop the virus from spreading. The majority of businesses had to allow “work from home” arrangements for their employees as a result of this action in order to maintain normal business operations. As organisations throughout the world update and enhance their IT infrastructure to enable seamless staff collaboration while retaining ongoing client contact, this has offered a significant opportunity for IT companies.

 

 

All businesses, from small local businesses to large conglomerates, are now focusing more on developing and upgrading their infrastructure for both consumer-facing and operations-related services as a result of the pandemic, which has highlighted the importance of having a proper IT infrastructure to ensure the efficient continuation of businesses. Additionally, many organisations that are IT enabled have also grown throughout this period. Long-term, this climate offers the IT sector excellent economic prospects that foster the expansion of IT firms.

 

IT businesses are noted for having little to no debt on their balance sheets as investments. Since their main focus is on delivering services rather than investing heavily in assets, they are often asset-light. This allows them to produce high profitability and return ratios for investors (ROE being in the range of 20-30%) while preserving enough liquidity on their books.

 

What Are Information Technology Stocks ?

 

The shares of the businesses engaged in the information technology industry are known as IT stocks or information technology shares. This industry’s main goals are to develop, look for solutions to the largest problems that confront regular consumers, and to supply such solutions. Infosys, Tata Consultancy Services, Mindtree, Wipro, Tech Mahindra, and other companies are among the best IT stocks in India.

 

Crucial Factors to Consider Before Purchasing Top IT Stocks in India

 

You should take into account a variety of unique criteria before investing in the best IT stocks in India in 2022. Let’s look at those components and have sufficient knowledge of them.

 

Information technology companies provide a variety of services, including insurance, pharmaceuticals, financial and banking services, electricity and utility services, and information and entertainment. As an investor, you must determine whether the businesses offer a variety of services and industry divisions that can contribute to the overall expansion of the IT industry.

 

If the facilities provided by the companies are dependable and have the proper development components, investing in such enterprises will provide better profits if you give the company shares sufficient time.

 

Europe, Asia, and the United States are among the regions in which Indian information technology companies provide their services. As an investor, you must be aware of the revenue generated in different regions of the world and evaluate the currency exchange rate in India. This will provide insight into the company’s prospective earnings and annual revenue.

 

Before investing in the top technology stocks in India, as an investor you must examine the products of the different IT firms. New and creative goods also have a significant impact on the company’s revenue and stock values, thus the company’s research & development division must be robust and productive. Numerous IT businesses in India routinely give dividends to their shareholders and conduct share buybacks to restore capital to their investors and shareholders. By analysing the distribution frequency, investors can learn more about the return on their investments and the consistency of their income.

 

Although the financial transactions of IT firms are beneficial for corporate shareholders and investors, as an investor you must also determine whether or not these companies have the sufficient financial strength to support their own organic and inorganic growth.

 

Multiple forms of stock market measures, such as P/E Ratio, PB Ratio, ROE, Cash flow, ROCE, etc., can be used to compare the performance of various companies over time. The level of operations and profit margin can help you comprehend the company’s overall financial status in the present market environment. If the company’s finances are solid, the company’s growth will be boosted, and the stock price will climb significantly over time.

 

As an investor, you should consider the revenue distribution across various geographies as well as the exchange rate of the Indian rupee. This will give you information about the company’s annual sales and future earnings.

 

Advantages of Buying Best IT Stocks in India as an Investor

 

The majority of the revenue generated by Indian IT companies comes from foreign markets, which means that these businesses generate revenue in foreign currencies. These export-focused businesses now make more money as a result of the rupee’s devaluation owing to currency translation. This is one of the primary reasons why investors’ demand for IT equities has soared. According to NASSCOM, these exports will continue to rise in the forthcoming fiscal years, which will have a beneficial impact on the company’s stock price and provide handsome returns to shareholders and investors.

 

For the Indian IT businesses The United States and Europe are the two largest marketplaces. It has been reported that the United States is responsible for at least two-thirds of all foreign currency exports, totalling at least 76 billion dollars. Moreover, a large number of Indian IT companies are optimistic about the U.S. business climate, which means that the U.S. will continue to spend more money to obtain the IT services of Indian companies, which will improve the growth and development of the IT companies and their share prices. A similar pattern is also observed among European clients.

 

A number of IT organisations are highly confident in their ability to achieve their revenue growth objectives. The IT industry as a whole is anticipated to experience revenue growth of 12-14%. With the increased penetration of Indian IT companies into global industries such as BPO and IT management systems, the IT industry is certain to receive a significant boost. One of the primary causes for the rise is the companies’ adaptation to the in-demand new services like cloud computing, social media, data analytics, and mobility. This also represents an additional revenue source for these Indian IT enterprises.

 

The aforementioned are the most significant reasons why IT stocks are the most popular among investors. Compared to stocks from other industries, IT companies offer superior returns on capital invested, and their price movements are also more easily foreseeable.

 

List of IT Companies in India in 2022 (basis market capitalization as 14, September 2022)

 

Tata Consultancy Services Ltd is the largest IT Services provider in the world and the second-largest IT firm in India based on market capitalization. The company offers a vast array of services, including IT Services, Consulting, Business Solutions, Digital Transformation, and IT Products and Platforms. The organisation is also exploring emerging technologies such as cloud computing, machine learning, artificial intelligence, and Blockchain technology. BFSI represents 39% of the company’s overall revenue, followed by Retail and Consumer Packaged Goods, Communications, Media, and Technology, Manufacturing, Life Sciences and Healthcare, Energy and Utilities, and Others. The majority of TCS’s revenue comes from the United States, which accounts for around 52.2%, followed by the United Kingdom and Europe excluding the United Kingdom at approximately 31.9%, and India, which contributes the least at 5.0%.

 

The company’s track record is reflected in its financials, as it has consistently delivered industry-leading results, such as a 5-year average RoE of 37.2%, an operating profit margin of 27.67%, and a strong cash flow generating business with FCF of around Rs 36,985 crore for FY22. TCS has also had sustained development, with revenue increasing at a CAGR of 10.2% over the past five years and net income increasing at a CAGR of 7.8% during the same period.

 

Despite the company’s good financial performance, its stock is valued at a premium relative to its competitors, with a P/E ratio of 34.68x compared to the industry average of 30.67x. While the price-to-earnings ratio is greater, the premium is justifiable because TCS has also achieved industry-leading shareholder returns.

 

A significant risk for the company is that it may not be able to provide growth at the same rate as in the past, consequently eroding the stock’s premium valuation and negatively affecting its share price. This effect is now observed in the stock and is anticipated to be a short-term occurrence.

 

Infosys Ltd is the second largest IT service company in India at present. The company provides a vast array of IT services to clients across the globe and in numerous industries, including the United States, Europe, Asia, and the rest of the world. Additionally, the organisation is engaged in the development of new technologies to improve customer service. It services the BFSI, Retail & Consumer Packaged Goods, Communications, Energy & Utilities, Manufacturing, and High-tech industries. The geographic split includes North America, Europe, India, and the remainder of the world.

 

With a 5-year average ROE of 25.8% and an Operating profit margin of 25.9%, the company has demonstrated a solid financial performance. Over the past five years, its top and bottom lines have grown at a CAGR of 12.2% and 9.2%, respectively. The company has a P/E ratio of 27.74x, making it fairly valued against its competitors. Infosys is at risk due to whistleblowers. In the past, it has been effective in calming fears, but several claims may still damage their reputation.

 

It is a subsidiary of HCL Enterprises and was formerly the research and development branch of HCL until 1991 when it became an independent firm and entered the software industry. It has offices in 32 countries, including the United Kingdom, the United States, France, and Germany. In addition to defence, aerospace, finance, capital markets, healthcare, mining, natural resources, etc., the corporation is also active in a variety of other industries.

 

Wipro Ltd (also known as Western India Products Limited) is an Indian information technology, consulting, and business process services company that utilises robotics, analytics, the cloud, and other technological advancements to assist clients on six continents in adapting to digital trends and thriving in the digital age.

 

Initially, the company was known as “Western India Palm Refined Oil Limited,” which manufactured vegetable and refined oils. Additionally, the corporation produces and sells healthcare products, furniture, and electrical appliances. Recently, Wipro Ltd. became the third IT company, after TCS and Infosys, to reach a market valuation of Rs. 3 billion.

 

Tech Mahindra Ltd. is an Indian IT business that is a subsidiary of the Mahindra Group that offers Network technology solutions and Business Process Outsourcing (BPO) services to numerous sectors. In 1986, the business was founded as a joint venture with British Telecom. Later in 2008–2009, Tech Mahindra acquired Satyam Computer Services via a subsidiary, and in 2012, Tech Mahindra combined with Mahindra Satyam to form the well-known IT giant Tech Mahindra Ltd.

 

In India, Larsen & Toubro Infotech Ltd is a large IT service company that offers a variety of IT services, including Analytics, Testing, ADM, Infrastructure Services & Security, and Enterprise Solutions, among others. The organisation provides services to clients worldwide. Current verticals served by the organisation include BFS, Insurance, Manufacturing, Hi-tech, Energy & Utilities, Retail, and Consumer Packaged Goods, among others. The company provides services to businesses across the globe, with the majority of orders coming from North America, Europe, India, and Asia-Pacific. With a 5-year average ROE of 38.6% and an operating profit margin of 19.0% in FY22, the company has consistently provided outstanding shareholder returns.

 

On the growth front, the company’s revenue grew at a CAGR of 19.2% during the past five years, while net profits grew at a CAGR of 19.2%. At 31.5x P/E, it is attractively valued and investors should consider it for their long-term portfolios. The company has announced a merger with Mindtree, which will likely increase its capacity to serve a bigger client base and improve its prospects. In addition, Mindtree’s greater growth rate can boost the company’s growth after the acquisition.

 

List of Top IT Stocks In India basis market capitalization 

 

Name NSE Market Cap Share Price
Tata Consultancy Services NSE:TCS ₹11.2 Lac Cr ₹3,058.50
Wipro NSE: WIPRO ₹2.2 Lac Cr ₹405.95
Infosys NSE: INFY ₹5.9 Lac Cr ₹1,394.90
Tech Mahindra NSE: TECHM ₹1.0 Lac Cr ₹1,056.00
L&T Technology NSE: LTTS ₹36,051.7 Cr ₹3,411.00
HCL NSE: HCLTECH ₹2.5 Lac Cr ₹916.25
Mindtree NSE: MINDTREE ₹51,710.3 Cr ₹3,130.70
Mphasis NSE: MPHASIS ₹39,141.8 Cr ₹2,076.30
Happiest Minds Technology Ltd NSE: HAPPSTMNDS ₹14,822.2 Cr ₹1,009.05
Oracle Finserv NSE: OFSS ₹26,202.8 Cr ₹3,029.00

*Data as of 20/09/22

 

Important Things To Remember

 

Never blindly adopt a stock marketing suggestion without completing your own extensive study, regardless of how legitimate the source may be. Invest in stocks only after conducting an exhaustive study and analysis of the performance of the companies and the stocks themselves. While some recommendations have the potential to yield enormous benefits, the incorrect ones might swiftly expose you to danger.

 

There is no assurance that a stock will recover after a significant decline. Understand that it is crucial to be realistic about what is possible and what is not in the stock market. When you realise that a stock in your portfolio is performing poorly, you should quickly sell it to prevent more losses.

 

While it is true that long-term investments are vastly superior to short-term investments, you should not exceed your investment budget. Instead, choose a predetermined sum and invest it in a variety of quality stocks. Instead of investing just in a single stock, allocate your funds among many well-performing stocks and shares.

 

FAQ

 

Many equities of IT companies are suitable for long-term investments. However, the investment will also be contingent on individuals’ risk appetite, investment horizon and financial objectives

 

Technology company equities are unquestionably among the most valuable shares available on the market. The vast majority of investors actively monitor this business and the stock prices of various technology companies due to its tremendous growth and track record.

 

 

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