June quarter corporate earnings season kicked off with IT companies delivering robust results in terms of revenue, margins, deal wins and guidance for FY21. Their Q1 results exceeded street expectations resulting in material earnings upgrades for the firms, said Motilal Oswal (MOSL) in a recent report.

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Healthy deal wins, robust deal pipeline and better-than-expected guidance for FY21 has driven 12-14 percent earnings upgrade for Infosys, HCL Tech and Wipro, added the brokerage firm.

This is impressive given the sharp earnings volatility seen in other sectors due to the COVID-19 pandemic induced lockdowns and consequent demand-supply disruption.

Hence the brokerage has further increased its allocations to the IT sector in the model portfolio and added 100 bps to Infosys, and introduced Wipro.

"We believe Wipro is a good re-rating candidate due to (a) potential upside of a turnaround under the new CEO, (b) possibility of an impending buyback, and (c) relatively attractive valuations," MOSL explained.

The increase in weightage in the IT sector in the MOSL portfolio came from trimming its positions in utilities.

"IT sector offers relative earnings comfort coupled with a solid balance sheet, cash flow, RoE and payout metrics in such current volatile and disruptive times. Tier-I IT companies have best in class balance sheets, resilient business models and excellent management pedigree and yet valuations are not expensive,' the report stated.

Going ahead, MOSL expects the IT sector’s relative earnings outperformance to sustain for the rest of FY21. Also, the relative growth divergence (versus other sectors) should support the re-rating of the IT sector, it added.

IT seems relatively well-poised given the better earnings visibility coupled with the comfort on the balance sheet, free cash flow, return ratios and payouts, it further stated adding that the importance of stable, consistent and rising cash flows and pay-outs usually gets exaggerated in such volatile times.