IT stocks extend gain; Persistent Systems, Coforge rise up to 16% in a week

Shares of information technology (IT) companies were in focus as Nifty IT index rallied over 1 per cent for the second straight day after technology companies reported in-line or better-than-expected earnings for the quarter ended December (Q3FY23).

At 01:12 pm; Nifty IT, the top gainer among sectoral indices, was up 1.2 per cent, as compared to 0.06 per cent rise in the Nifty50 index. On Monday, the IT index gained nearly 2 per cent on the National Stock Exchange (NSE).

In the past one week, Nifty IT index outperformed the market, as it gained 3.3 per cent, as against 0.81 per cent gain in the benchmark index. Since January 6, the IT index rallied 9 per cent, as compared to 1.6 per cent rise in the Nifty50.

In the past one week, shares of Persistent Systems (up 16 per cent) and Coforge (up 13 per cent) surged more than 10 per cent. Tata Elxsi, Zensar Technologies, Sonata Software, LTIMindtree and Mphasis, too, outperformed the IT index, as shares gained in the range of 5 per cent to 8 per cent in a week.

Shares of Persistent Systems traded at its highest level since April 2022. The company won several large deals across industries and service lines, driving 20 per cent sequential growth in total contract value (TCV) bookings in Q3FY23. The order booking for the quarter was at $440.2 million in TCV (total contract value) and $326.3 million in Annual Contract Value (ACV) terms.

Strong deal pipeline, traction in cost-take-out deals and likely bounce back in top client growth should cushion any moderation in discretionary spends, said analysts at Motilal Oswal Financial Services (MOFSL). Morever, they expect Persistent Systems to deliver a top tier revenue growth among the midcap IT coverage universe (21 per cent CAGR over FY22-25E).

Coforge, on the hand, reported better-than-expected 24 per cent year-on-year (YoY) jump in consolidated profit after tax (PAT) to Rs 228 crore in Q3FY23. On a consolidated basis, revenues were up 3.7 per cent quarter-on-quarter (QoQ) in Q3FY23, whereas 20.7 per cent YoY on constant currency (CC) basis. In rupee terms, meanwhile, revenue was up 4.9 per cent, while 2 per cent QoQ in dollar terms.

The firm upgraded its fiscal year 2023 annual revenue growth guidance to 22 per cent in CC terms and reaffirmed adjusted EBITDA annual margin guidance.

The management said that the firm signed largest number of deals during the quarter in its history. As a consequence, the order intake was highest-ever at $345 million. This performance in a seasonally weak quarter, thereby, has set up positive tone for FY2024.

"The company’s order book executable over next 12 months stood at $841 million at the end of the quarter, 20 per cent YoY growth. Attrition declined by 60 bps QoQ and stood at 15.8 per cent and continues to be amongst the lowest in the industry," the management added.