Defying the storm! Two midcap IT stocks ready to soar amid macro turmoil

In this scenario, ICICI Direct has picked two stocks — Persistent Systems and Happiest Minds from the IT space that are expected to weather the storm and well positioned to deliver industry-leading growth in FY24.

“Secular shift to smaller-sized deals to enable the digital transformation of enterprises has created a level-playing field for both large and mid-tier IT vendors,” the brokerage said.

Despite the broader macro concern that discretionary digital spend is getting postponed, ICICI Direct highlighted that both Persistent Systems and Happiest Minds are building digital solutions for clients which are mission-critical.

“Hence, a significant portion of their revenues is being generated outside annual technology budgets, which is seeing certain pressure,” it said.

Persistent Systems reported a 25% growth in its March quarter net profit at Rs 251 crore. Its revenue grew 26% to Rs 2,254 crore.

ICICI Direct reinitiated coverage on Persistent Systems with a “buy” rating and a 12-month target of Rs 5,960, implying a 26% potential upside.Persistent Systems has crossed the $1 billion-revenue threshold in FY23, and it is a sweet spot for IT vendors to target both small and large-sized deals, the brokerage said, forecasting an 18% dollar revenue CAGR over FY23-26E.

On Wednesday, Persistent Systems stock was trading 0.89% higher at Rs 4,760 apiece on NSE. So far this year, the shares are down 18%.

Meanwhile, Happiest Minds has been given a 12-month target price of Rs 1,038 by the brokerage, implying a 20% potential upside.

The key catalyst for Happiest Minds’ stock performance would be a large deal win announcement, strong net-headcount addition, and consistent revenue growth outperformance over its Indian and global peers.

Happiest Minds shares are down about 1.77% on a year-to-date basis.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of The Economic Times)