Top IT Stocks to Consider for the Year 2022 – Add these to your portfolio

8 August 2022
6 mins read
Top IT Stocks to Consider for the Year 2022  – Add these to your portfolio

The beginning of a financial year is the best time to re-evaluate your portfolio. It serves two purposes – you can realign your portfolio to the changing financial goals. And secondly, you can shuffle your holdings, add the robust stocks and sell the weak ones.

Because of the strong performance of the Indian IT companies, they have become the favourite of the investors. If you plan to start investing or build a portfolio, add stocks from these Indian IT companies to bolster your investment. Here are the IT shares to buy for the long term.

However, the securities quoted are exemplary and are not recommendatory. One must perform due diligence before investing.

Sector-wise Performance Analysis

Before discussing about IT stocks, let’s see how the industry has performed.

In the last few years, especially during the COVID period, the Indian IT sector has performed exceptionally well. As per Nasscoms’ FY22 industry performance review, The industry grew by 15.5% in FY22 and added USD 33 billion to the last year’s revenue. Total revenue from 2021-22 is pegged at USD 227 billion.

Source: “https://www.financialexpress.com/industry/indian-it-revenues-grow-fastest-in-a-decade-to-usd-227-bn-in-pandemic-hit-fy22/2434619/”

  • The IT sector is currently contributing ~9% to the Indian GDP
  • The industry growth was 15.5% YoY in FY22 against a estimated GDP growth rate of 8-9%.
  • There were 4.5 lakh net additions to total direct workforce during the same period

The sector was resilient against the onslaught of Covid and continued to thrive. A sharp rise in demand for new technologies like cloud, analytics, and AI will keep the growth rate strong for the industry in the coming years.

Reasons to invest in the Indian IT companies

  • India is the largest sourcing destination, serving about 59% of the global sourcing market. Source: “https://www.ibef.org/industry/information-technology-india “.IT companies primarily carry little to no debt on their balance sheet.
  • These are asset-light with high cash conversion, without significant CAPEX due to the service provided that enables them to generate high portability and returns for investors.

The COVID pandemic has highlighted the need for a robust IT infrastructure to continue operating from remote and multiple locations seamlessly.

IT stocks to watch for in 2022

The Indian IT industry is thriving, creating enormous investment opportunities. Let’s look at the top IT companies that will bolster your portfolio.

Infosys Ltd

  • Infosys is the second-largest in the IT space after TCS.
  • The company has been posting strong growth rates over the last few years, which helped it close the growth gap with peers.
  • Infosys has reported major deal wins, including projects worth USD 9.5 billion in the pipeline.
  • Continuous strong industry demand will help Infosys to mark leadership in the domain.
  • The company had delivered a solid financial performance with a 5-years average ROE of 27.2%
  • Delivered 10% top-line CAGR growth in the last five years

After its recent performance, Infosys Ltd. is the preferred name in the large-cap IT space.

Check Infosys share price

HCL Tech

  • HCL is among the top four IT companies based in India that offer a gamut of services like ADM, Enterprise Solutions, Infrastructure Management Services, and more.
  • The company’s IT service recorded strong QoQ growth of 5.2% in constant currency terms for Q4Fy22
  • New deal TCV grew by 6% QoQ to USD 2.3 billion, with the second-highest ever deal pipeline.
  • The company reported annual revenue of USD 11,481 million, a 12.8% growth.
  • Revenue in constant currency recorded a growth of 12.7%

Before investing, one should have detailed knowledge about HCL Tech share price to avoid any risks

Mphasis

  • Starting in 1992, Mphasis is a mid-cap IT company catering to the BFS and the Insurance segment, which constitutes ~61% of its revenue.
  • The company’s US dollar revenue grew 21.8% YoY on a reported basis and 21.3% on a constant currency basis.
  • The company recorded the highest 35% growth from direct business YoY.
  • The company won a new TCV worth Rs USD 1.43 Bn during FY22.
  • The company’s differentiating skills and go-to-market approach have enabled it to win some bid deals.
  • Currently, Mphasis stock is trading at a P/E multiple of 31x, which is at a discount from its peers despite a similar growth rate.

Coforge

  • Coforge is a mid-cap IT service provider belonging to the Barings group.
  • The company has a well-diversified client base in BFS, Insurance, Travel, and Hospitality.
  • They have recorded an order intake of USD 850 million during the nine months of FY22.
  • The stocks are currently trading at a P/E multiple of 30x equity per share, in line with its peers despite striking a higher growth rate.
  • With a consistent focus on client mining, building digital capabilities, and specialization in emerging technology like digital integration, Coforge is a strong contender in the domain.

How to select long-term stocks in the IT segment

Investors must look for the specific factors that help them select IT stocks for long-term investment.

  • IT companies always operate in several verticals like BFS, Insurance, Pharma, Travel, Hospitality, etc. The segments they cater to impact the company’s profitability directly. Select stocks from companies that are well-diversified across verticals.
  • Investors need to look into the composition of their revenue shares from different countries. Any gain or loss in foreign currency rates will significantly impact the company’s earnings.
  • The company’s balance sheet will help you assess its financial health. Investors often base their decisions on ROE, ROCE, P/E ratio, Cash flow from operations, and profit margin ratios.
  • Current and future order inflow is critical for ascertaining the revenue flow expected from the company.
  • Another critical aspect is the product offering which gives them an edge over competitors. It is worth noting which companies have higher R&D spending as discoveries significantly influence technology.
  • IT companies often pay regular dividends and conduct share buybacks. Companies which are regularly doing these are financially stable.

The final words

The right stocks will boost the performance of your investment. The Indian IT company is one of the strongest performers with many leading names.

Start investing today and grab the opportunity when the Indian IT industry is on a sharp growth trajectory. To begin, open a Demat account.

Disclaimer: “This blog is exclusively for educational purposes and does not provide any advice/tips on Investment or recommend buying and selling any stock”.