“Midcap IT companies are very well-positioned and I expect their growth rates to continue over the next two to three years at a faster clip,” said Apurva Prasad, Vice President, Institutional Research-IT Sector at Elara Capital, in an interview to CNBC-TV18.

He mentioned that while the market is pricing in near-term higher growth rates for most of these companies, from a slightly medium-term perspective, for most of these companies, what is getting priced in right now is still in the range of low to mid-teens and a lot of these companies will probably outdo that kind of growth rate.

Prasad said, “So, from a perspective of great upsides over the medium term, companies such as Persistent Systems, Mphasis, and L&T Technology Services provide good opportunities.”

On L&T Tech, he said that Elara has raised the target price to Rs 5,450 and increased earnings by about 4 percent or so. He said, “The company has increased its guidance. Some of the portfolio-related challenges seem to be a lot more broad-based and most part of the portfolio is driving that and it is the mix of revenue, which is supporting the overall margins. From a perspective of headroom for growth and the overall R&D space, they are very well-positioned to even outdo their guidance.”

On Midcap IT earnings, Prasad is of the view that the phenomenal growth numbers posted by some of the midcap IT companies could be the new normal and that there is a major reset that seems to be happening.

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“In my opinion, over the next decade, what tier-1 companies did to global IT majors in terms of market share displacement, that is something which can replicate within mid-tier taking a fair amount of market share from some of the larger companies. I think there is a very strong case for that. I do see a lot of these companies growing sustainably at much higher levels of growth rate,” he said.

Prasad explained, “The near-term growth rate that they have been posting on a sequential basis is pretty much the year-on-year (YoY) growth rates that they have been doing. I think a lot of this is sustainable and I would argue that the longevity of high growth rate is probably what is still not factored in.”

“These companies are in a very good spot, and some of the competencies that they have built, and the role that they play as specialists and the challenges to tier-1 companies is also probably helping them. Further, the scale at which they operate helps them participate both in the larger sized teams as well as putting them at the right spot to take advantage of some of those digital deals, which seems to be getting bigger,” he said.

For the entire conversation, watch the accompanying video

(Edited by : Dipikka Ghosh)

First Published:Oct 20, 2021 10:36 AM IST