5 IT Stocks to Watch Out for Multibagger Returns

The Indian information technology (IT) sector has been under tremendous pressure since the beginning of 2022.

This was on the back of a global crisis along with the fears of a full-blown recession.

The leading causes were concerns over a prolonged slowdown in US IT spending and a rising attrition rate. The dismal quarterly results in June didn't help either, painting a bleak near-term picture.

While the sector is still a little away from recovery, Indian IT stocks have always delivered handsome returns to investors.

Here are the top five top IT companies to watch out for.

#1 Infosys

First on our list is Infosys.

Infosys is India's third-largest IT company. The company's key business verticals include insurance and financial services (32% of the total revenues), which command a large chunk of the industry vertical, followed by retail (16%), and communications (13%).

The company's digital services-related capability in cloud computing, the internet of things (IoT), big data and analytics, and artificial intelligence (AI) is ranked as the best in the industry.

Infosys Financial Snapshot (2018-2022)

	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Revenue Growth (%)	2.70%	15.90%	10.00%	9.50%	20.30%
Operating Profit Margin (%)	31.50%	27.90%	27.60%	29.90%	27.80%
Net Profit Margin (%)	22.80%	18.60%	18.30%	19.30%	18.20%
Return on Equity(%)	24.10%	23.80%	25.60%	27.50%	29.40%

Source: Ace Equity

This reputation is well-reflected in the business performance. The IT major has grown its revenues and profits at a 5 year CAGR of 11.5% and 9.1%.

This growth has trickled down to the return on equity (RoE), which stand at a 5-year average of 26.1%.

The company is also generous to its shareholders via the dividends it pays. It has a 5-year average dividend yield of 2.6%.

The company has also returned excess cash to the shareholders in the form of buybacks. Over the last five years, Infosys has bought back shares worth Rs 304.6 bn from the market in three different transactions.

The business is expected to grow well in the future. Going forward, the company expects strong demand from its clients in the digital, cloud and data segment. This expectation is backed by the successes they have had in the past few years.

Currently, the stock is trading at a Price to Earnings (PE) of 29.5. Since the beginning of the year, the stock has fallen by over 15%.

For more details, check out the company's financial factsheet and the latest quarterly results.

#2 Tata Consultancy Services (TCS)

Next on our list is TCS.

TCS is a part of the Tata group. The company has been offering IT solutions and consultancy services for the past 50 years.

It boasts a diversified clientele with key business verticals like financial services, retail, communication, energy & utilities, life science and healthcare.

TCS is the second-largest Indian company by market capitalisation (after Reliance) and is one of the most valuable IT brands worldwide.

TCS Financial Snapshot (2018-2022)

	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Revenue Growth (%)	3.70%	19.00%	7.10%	3.60%	17.00%
Operating Profit Margin (%)	29.40%	29.90%	29.80%	30.30%	29.80%
Net Profit Margin (%)	21.00%	21.50%	20.70%	19.80%	20.10%
Return on Equity(%)	30.30%	36.20%	37.60%	38.50%	44.10%

Source: Ace Equity

The company's performance is a true testament to its leadership and business acumen. While the revenue of the company has grown at 5-year CAGR of 9.9%, the profits have grown at 7.8%.

The robust growth has propelled the RoE, averaging at 37.4% in the past 5 years.

The organisation rewards its shareholders well; in the form of buybacks and strong dividend payouts.

The 5-year average dividend yield stands at 1.5%. However, despite the rosy performance, the company's stock has succumbed to the fears of a global recession.

It has tumbled by over 11% since the beginning of the year and is currently trading at a PE ratio of 31.2 times.

For more details, check out the company's financial factsheet and the latest quarterly results.

#3 HCL Technologies

Third on our list is HCL Technologies.

HCL Tech is India's fourth-largest IT company, operating in over 52 countries.

The company's key focus areas are BFSI, manufacturing, cloud computing, life sciences and healthcare, and media and entertainment and has an impressive client roster.

The company has adapted itself every step of the way. The latest are the Internet of Things, cloud computing, and cybersecurity. The key growth comes from these segments, which are increasingly becoming a large source of revenue for IT companies.

But apart from forging innovations in-house, HCL Tech has been ahead of the technology curve by investing in various fruitful partnerships. This is clearly visible in the business performance.

HCL Tech Financial Snapshot (2018-2022)

	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Revenue Growth (%)	6.50%	18.50%	16.20%	7.10%	13.60%
Operating Profit Margin (%)	24.60%	24.60%	25.30%	27.80%	25.20%
Net Profit Margin (%)	17.20%	16.70%	15.60%	14.80%	15.80%
Return on Equity(%)	25.10%	26.00%	23.90%	20.10%	22.20%

Source: Ace Equity

The company's revenue and net profit has grown at a 5-year CAGR of 12.3% and 9.5%, respectively. This robust growth has led to a strong RoE, averaging 23.1% over the last 5 years.

The company has shared this with the shareholders, reporting a 5-year average dividend yield of 1.3%.

Much like its peers, the stock has also fallen since the beginning of the year. After falling by over 16%, the stock is now trading at a PE of 21.7 times.

For more details, check out the company's financial factsheet and the latest quarterly results.

#4 L&T Technology Services

Fourth on our list is L&T Technology Services (LTTS).

LTTS is a mid-sized niche Indian IT firm with a primary focus towards exclusive outsourced engineering and R&D Services.

Unlike its larger peers, LTTS undertakes complex design and engineering projects that require deep domain expertise. It operates higher up the value chain, which allows the company to attain higher margins on the services it offers.

LTTS caters to industrial products, transportation, telecom & hi-tech, and process industries. It enjoys a well-balanced and diversified presence across industries in tandem with a strong reputation due to its heavy engineering-focused parent Larsen & Toubro Ltd.

L & T Technology Financial Snapshot (2018-2022)

	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Revenue Growth (%)	18.80%	34.10%	10.00%	-3.20%	19.70%
Operating Profit Margin (%)	20.50%	22.40%	23.50%	21.30%	23.90%
Net Profit Margin (%)	13.50%	15.10%	14.60%	12.20%	14.60%
Return on Equity(%)	30.40%	35.50%	31.80%	21.60%	25.30%

Source: Ace Equity

The rising demand for digitization, in the post-pandemic era, has driven LTTS' revenue growth in the past few years. While the revenue of the company has grown at a 5-year CAGR of 15.3%, the net profit has grown at 17.4%.

The margins have been robust, allowing return RoE to expand. The 5-year average RoE stands at 28.9%.

The dividend payouts have also been decent, reporting a 5-year dividend yield of 1.4%.

LTTS shareholders have also borne the pain of the offloading witnessed across the IT sector. Since the beginning of the year, the share price has fallen by 27% and is now trading at a PE of 40.9x.

For more details, check out the company's financial factsheet and the latest quarterly results.

#5 Persistent Systems

Last on our list is Persistent Systems.

Persistent is a Tier-1 and mid-sized Indian IT firm. It is amongst the few successful mid-tier tech companies in India which are considered active in the upcoming digital technologies pace.

The company derives its revenues by offering services in software and product development. In software services, the company competes with more established names like TCS, Infosys, and the mid-techs.

However, it also competes with smaller niche providers in India and internationally in the digital and products platform space.

The company's business has been growing at a fast pace, primarily driven by the US business, which accounts for more than 80% of the revenues.

Persistent Systems Financial Snapshot (2018-2022)

	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Revenue Growth (%)	6.60%	9.20%	6.90%	16.20%	36.50%
Operating Profit Margin (%)	19.40%	19.10%	17.50%	18.90%	19.30%
Net Profit Margin (%)	10.60%	10.40%	9.50%	10.80%	12.10%
Return on Equity(%)	16.20%	15.80%	14.50%	17.70%	23.00%

Source: Ace Equity

The revenue and profit of the company has nearly doubled, growing at a healthy 5-year CAGR of 14.5% and 18.2%, respectively.

The RoE also mirrors the substantial growth, averaging 17.4% in the past 5 years. The 5-year average dividend yield stands at 1.5%.

However, none of this has shielded the stock price from plunging during the year. Since the beginning of the year, it has fallen by over 16% and is trading at 38.4x.

For more details, check out the company's financial factsheet and the latest quarterly results.

In conclusion,

Spotting the next multibagger for your portfolio is tempting. It can be a great way to earn life-changing wealth in the stock market. However, you must take your time.

The key is to build a sound investment strategy that reflects your investment horizon, financial condition, and risk tolerance.

See how the new investment fits into that and not the other way around. That is what successful investing is all about.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...