Continuing on our theme of considering potential alternative investment option to high-risk defense, power, and infrastructure stocks; we follow the Private Banks and Corporate Bonds with a review of the IT Stocks.

The Nifty IT Index surged post Covid-19, with the flood of global liquidity and the perception that the Indian IT stocks are a strong, well managed, defensive investment in an uncertain market. Over the last 2 years, the large & mid-sized IT service providers in India have seen muted growth due to an overall slow market.

The US Enterprises were conservative on their IT spending, expecting a recession in 2023 which never came. Many analysts expect the IT budgets in the US to grow significantly in the second half of 2024. This growth is expected to drive growth in Indian IT sector.

Looking at the valuation of individual IT stocks – there are some clear trends emerging in terms of valuation.

	10 Year Median PE	5 Year Median PE	Current PE	5 Year Compounding EPS Growth %	5 Year Compounding Stock Price Growth %
Wipro	17.7	19.6	23.2	7.2	12.7
TCS	25.6	30.2	29.6	8.6	13.7
INFY	20.8	26.4	24.4	12.4	21.2
LTI	25.7	31.3	33.1	12.1	25.0
Tech Mahindra	18.9	21.6	18.6	-11.2	12.5
Persistent Systems Ltd	20.2	38.2	55.5	26.4	66.8
Tata Elxis	33.7	58.9	56.9	22.3	49.1
HCL	16.7	20.6	25.9	9.2	21.4

Infosys shows the highest EPS growth compared to other large IT service providers, and is currently valued at a PE few points below its historical PE. TCS too is pretty competitive in this analysis with strong growth and reasonable valuation. The other stocks with an exception to Tech Mahindra seem to be reasonable or possibly slightly highly valued.

The potential for growth on individual stocks will depend on the ability of these companies to execute on emerging areas such as Gen-AI, and contingent on the business sentiment in the US looking up.

Remember: Before making portfolio adjustments, thoroughly assess your risk tolerance, investment goals and exposure to asset classes such a REITs, Gold, Bods, etc. Consult a financial advisor for personalized advice specific to your unique situation.