In an AI driven world, are they better placed than large-caps? 4 mid-sized IT stocks with upside potential of up to 38%
IT Stocks: The impact of management commentary on stock performance was evident last Friday. While the market was experiencing declines, one stock stood out by showing growth. This stock was TCS, not due to its Q3 numbers, but because the management commentary accompanying the results conveyed confidence in future growth.
The IT sector has been facing challenges due to negative news and opinions. With TCS delivering strong returns, investors may wonder if they should consider Infosys or other mid-cap software stocks. It is often difficult to go against the prevailing narrative in the market. If TCS and Infosys continue to perform well, there may be a consensus to stick with large-cap stocks. However, given the changing landscape of the IT sector, taking a contrarian approach could be beneficial.
The IT sector has undergone significant changes in recent years. While machine learning and cloud computing were once dominant, AI and other specialized segments have now taken the lead. Smaller companies focusing on niche areas have shown impressive growth, outperforming industry giants like Infosys and Wipro.
Mid-cap IT stocks, particularly those operating in niche markets, have shown strong performance. Companies like Tata Elxsi and KPIT have emerged as success stories, generating substantial wealth during the IT bull market of 2020-21.
Some mid-cap IT companies receive limited analyst coverage due to their management’s reluctance to provide forward guidance. These companies often only engage with stakeholders during their conference calls, limiting their exposure to investors.
The positive response from the market to the TCS numbers indicates that expectations for IT companies are currently low. This means that even a small amount of positive feedback from mid-cap companies could result in a significant increase in their stock prices.
Several mid-cap software stocks have been quietly making a comeback after experiencing corrections in their valuations. Many of these companies reported better-than-expected Q2 results, leading to a positive reaction from investors.
Some of these stocks have also received upgrades, with expectations that this trend will continue. These companies operate in sectors with strong growth potential, which is contributing to their positive outlook.
Management teams of these companies are expressing confidence in their margins and anticipate an increase in bigger deals in the near future. The optimism is fueled by the ongoing digitization trend, which is expected to continue driving growth.
In the upcoming quarters, margins that were previously impacted by rising employee costs are expected to expand again as companies address these issues through downsizing and reduced salary hikes.
These stocks present opportunities for contrarian investors. While they may underperform as the Nifty index fluctuates, there is potential for significant returns in the long run. It’s important to be patient and trust in the value of these investments.
Our list features companies in the IT sector with a potential upside of up to 38%, based on data from the latest Stock Reports Plus report dated January 12, 2025. The list also includes the number of analysts evaluating each stock, providing valuable insights for investors.
For the purpose of this report, we have selected stocks with an average stock report score of at least 5. Additionally, the stock must have an overall rating of either “Strong Buy,” “Buy,” or “Hold.” The list has been sorted with the stock with the highest potential at the top.
Mid-cap IT Stocks – Upside Potential
About the Companies:
Birlasoft Limited is a company that provides information technology (IT) services, consulting, and business solutions. The company offers a range of services, including digital and enterprise technologies. Their digital services encompass data analytics, connected products, intelligent automation, cloud, and blockchain. On the other hand, their enterprise technologies and services cover customer relationship management, manufacturing execution systems, product lifecycle management, supply chain management, IT transformation, applications management, testing, infrastructure, and cloud technology. Some of their solutions include intelliAsset, TruView contract lifecycle management (CLM), TruLens, Supplier Risk Radar, submission automation, and AKOYA. Birlasoft Limited serves various industries such as automotive, banking, manufacturing, capital markets, insurance, media and entertainment, energy and resources, life science and healthcare, and utilities.
Mastek Limited is a leading expert in enterprise digital transformation. The company specializes in providing vertically focused enterprise technology solutions. Mastek operates in various segments, including UK & Europe operations, North America operations, Middle East, and others. Their portfolio includes a range of business and technology services, such as application development, application maintenance, business intelligence, data warehousing, testing and assurance, and legacy modernization. They offer services in digital application and engineering, Oracle cloud and enterprise applications, digital commerce and experience, data, automation, artificial intelligence, and cloud and software as a service (SaaS) managed services. Mastek serves a diverse range of industries, including public sector and government, healthcare and life sciences, retail and consumer, manufacturing and industrial, and financial services. The company operates primarily in India, where it has software development centers.
Sonata Software Limited is a global technology company that specializes in delivering IT services and software solutions. The company’s primary segments are based on geographical areas, including Domestic (India) and International (Rest of the world). Sonata’s secondary segment comprises business segments, products, and services. They provide innovative solutions for travel, rail, and airline companies by integrating technologies such as Omni-channel commerce, mobility, analytics, cloud, and enterprise resource planning. Sonata’s operations include software development, technical services, and product marketing. Their software portfolio includes the Brick & Click Retail Platform, Modern Distribution Platform, Rezopia Digital Travel Platform, Kartopia E-commerce Platform, Halosys enterprise development automation Platform, CTRM Commodity Trading and Risk Management Platform, and KODO- artificial intelligence (AI) Powered Customer Experience (CX) Platform.
Zensar Technologies Limited is a leading digital solutions and technology services company. Specializing in a wide range of IT services and solutions, the company operates in two key segments: Digital and Application Services (DAS) and Digital Foundation Services (DFS).
The DAS segment focuses on custom applications management services, including application development, maintenance, support, modernization, and testing services across various technology and industry verticals. On the other hand, the DFS segment offers infrastructure management services such as hybrid IT, digital workspace, dynamic security, and unified IT provider under a managed service platform utilizing automation, autonomics, and machine learning.
Zensar Technologies Limited provides a comprehensive suite of services, including analytics, application transformation, digital foundation, digital experience, enterprise application, testing, and unified digital commerce. The company caters to a diverse range of sectors, including manufacturing, retail, consumer services, and insurance.
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Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Investors should conduct thorough research and consult with a qualified financial advisor before making any investment decisions.