17 Aug IT Contrarian Bets: 5 Stocks to Watch

“Contra Bets: 5 Software Stocks with 29% Upside Opportunity”

In 2021, software stocks were thriving, driven by the global trend of digitization and cloud adoption. This positive momentum was expected to continue for the Indian software sector due to a strong deal pipeline.

However, as we enter 2023, the narrative has shifted. Valuations are now considered expensive, and the deal pipeline has slowed down. This raises an interesting question:

Could there be an opportunity to take a contrarian approach?

After leading the stock market rally during the pandemic, software stocks have faced a correction in their valuations for over a year and a half.

Back in August 2021, these stocks were confidently labeled as “buy” and “strong buy.” It seemed like the demand for the software sector was unstoppable. Fast forward to August 2023, and more than half of these companies are now being suggested as “hold” or “sell.”

Also Read: “Technical Analysis: All You Need to Know for Smarter Investments”

Nevertheless, some mid-cap software stocks are making a comeback.

-Their Q1 results have exceeded expectations, leading to positive reactions in their stock prices.

-A few of these stocks have even been upgraded by analysts, although their price targets remain conservative.

-While the deal pipeline isn’t as robust, many company managers remain optimistic about margins, anticipating a return of larger deals.

-This optimism stems from the ongoing digitization trend, even though its pace might have slowed.

-Additionally, the movement of the rupee is working in favor of these companies.

-The margins, which were previously impacted by rising employee costs, could witness some expansion due to wage cost rationalization.

It’s also important to note that the software sector has evolved significantly in the past decade. Different companies are now focused on different aspects, such as cloud, products, or AI. Each of these areas operates as its own industry, influenced by distinct demand and margin factors.

For instance, AI-focused companies are experiencing a surge in order flow, while those concentrating on cloud integration are facing a relative slowdown.

Although it might seem tempting to take a contrarian approach, it’s essential to remember that it comes with its challenges. A contrarian bet could result in underperformance for a period, requiring careful monitoring. Making profits in the stock market isn’t easy; it demands hard work and patience. To learn more about stock market basics and stock analysis one can consider enrolling in our Stock Market Learning Courses, here.

The data in this blog is drawn from the latest Stock Reports Plus report dated August 17th, 2023 from ET.

Also Read: Why Analysts are Bullish on This Midcap Stock?

Happiest Minds Technologies Limited

• Recommendation: Strong Buy
• Analyst Count: 2
• Upside Potential: 29.1%
• Institutional Stake: 3.5%

 
Happiest Minds Technologies Limited is a company specializing in digital transformation, information technology (IT) consulting, and services. The company’s operations are categorized into three segments:

Infrastructure Management & Security Services (IMSS), Digital Business Solutions (DBS), and Product Engineering Services (PES).

Infrastructure Management & Security Services (IMSS): IMSS is dedicated to providing continuous support and managed security services to mid-sized enterprises and technology companies.

The services offered encompass a wide range of digital technologies, including

-Robotic process automation (RPA), software-defined networking/network function virtualization (SDN/NFV), big data, advanced analytics, Internet of things (IoT), cloud computing, business process management (BPM), and security solutions.

Digital Business Solutions (DBS): DBS focuses on aiding customers in their digital modernization and transformation efforts. This is achieved through the development of digital applications and the modernization of existing applications. The aim is to enhance the digital capabilities of businesses.

Product Engineering Services (PES): PES offers services in the realm of digital innovation, including digital foundry services, platform engineering, and device engineering. These services are geared towards supporting companies in their digital endeavors.

Also Read: Buy or Sell: Sumeet Bagadia’s 3 Stock Recommendations for This Week

Intellect Design Arena Limited

• Recommendation: Buy
• Analyst Count: 6
• Upside Potential: 20.3%
• Institutional Stake: 11.5%

 
Intellect Design Arena Limited functions as a holding company, primarily involved in software development and the provision of software product licenses and related services. The company boasts a diverse portfolio of products catering to various sectors, including Global Consumer Banking, Central Banking, Risk and Treasury Management, Global Transaction Banking, and Insurance.

Product Offerings:

• Digital Core: This is a web-enabled banking software that empowers banks with digital capabilities.
• Lending: This system supports the management of all financial facilities, from retail to corporate, within a bank.
• Wealth Qube: A wealth management solution catering to private banks, wealth management firms, advisory firms, broker-dealers, and independent financial advisors.
• Quantum Central Banking Solution: A banking solution designed to meet the specific needs of central banks, incorporating technology frameworks.

 
The company’s operations extend across different regions including India, North America, South America, Asia Pacific, Europe, and the Middle East. Intellect Design Arena Limited operates by developing software products and providing licenses and related services to clients. Their product range covers a wide spectrum of financial services, enabling institutions to navigate various aspects of banking and wealth management efficiently.

Also Read: “Public Sector Banks: Share Prices are Still 80% Down from All-Time Highs Despite Recent Rally

Coforge Limited

• Recommendation: Hold
• Analyst Count: 28
• Upside Potential: 18.2%
• Institutional Stake: 81.5%

 
Coforge Limited operates as an information technology (IT) solutions company, focusing on various areas including in-application development and maintenance, managed services, cloud computing, and business process outsourcing. The company provides services related to computer programming consultancy and associated activities.

Business Focus: Coforge Limited concentrates on several key aspects:

• In-Application Development and Maintenance: This involves creating and maintaining applications to cater to specific needs.
• Managed Services: The company offers services for managing and maintaining IT systems and solutions.
• Cloud Computing: Coforge is involved in leveraging cloud technology to enhance IT capabilities.
• Business Process Outsourcing: The company provides outsourcing solutions for various business processes.

Geographical Segments: Coforge’s operations are divided into geographical segments:

• Americas
• Europe, Middle East, and Africa (EMEA)
• Asia Pacific (APAC)
• India

Technological Expertise: The company provides a range of technology solutions including:

• Product Engineering
• Salesforce Ecosystem: Involves services related to Salesforce, Mulesoft, and Tableau.
• Digital Integration
• Digital Services
• Artificial Intelligence (AI)
• Data and Insight
• Digital Process Automation: Utilizing platforms like Appian, Pega, and OutSystems.
• Cloud and Infrastructure Management Services: Including Anyplace Workplace and Anywhere Data Center.
• Cybersecurity Services
• Systems Applications and Products (SAP) Services
• Advanced Application Engineering Services

 
In summary, Coforge Limited operates as an IT solutions company, catering to various needs such as application development, cloud computing, and managed services. Their expertise spans multiple technology domains, allowing them to serve clients across different geographical regions.

Also Read: “Public Sector Banks: Share Prices are Still 80% Down from All-Time Highs Despite Recent Rally

Mphasis Limited

• Recommendation: Hold
• Analyst Count: 30
• Upside Potential: 17.5%
• Institutional Stake: 32.9%

 
Mphasis Limited stands as an information technology (IT) solutions provider, specializing in cloud and cognitive services. Their mission is to apply technology to help global enterprises transform their businesses. The company’s operations are categorized into several segments, including Banking and Financial Services, Logistics and Transportation, Technology Media and Telecom, Insurance, and Others.

Transformation Approach: Mphasis employs the Front2Back transformation approach, which leverages cloud and cognitive technologies to provide personalized digital experiences to clients and their customers. This approach aids in creating tailored solutions for clients.

Range of Services: The company offers an array of services including:

• Application services
• Blockchain platform
• Business process services
• Cloud and cognitive solutions
• Cybersecurity
• Digital solutions
• Enterprise automation
• Infrastructure services
• Products engineering
• XaaP (Everything as a Platform) services
• And more

Industry Focus: Mphasis serves various industries, such as:

• Banking and capital markets
• Insurance
• Healthcare and life sciences
• Payments
• Hospitality
• Travel and Transportation
• Energy and utilities
• Oil and gas

Related Read: Top Picks for the Current Market

Birlasoft Limited

• Recommendation: Buy
• Analyst Count: 13
• Upside Potential: 17.4%
• Institutional Stake: 35.4%

 
Birlasoft Limited is a company engaged in providing information technology (IT) services, consulting, and business solutions. The Company offers a comprehensive range of services that encompass digital and enterprise technologies and services.

Its portfolio includes various digital services such as

-Data analytics, connected products, intelligent automation, cloud, and blockchain.

Additionally, Birlasoft provides enterprise technologies and services, covering customer relationship management, manufacturing, execution systems, product lifecycle management, supply chain management, IT transformation, applications management, testing, and infrastructure and cloud technology.

The company’s solutions include intelliAsset, TruView contract lifecycle management (CLM), TruLens, Supplier Risk Radar, submission automation, and AKOYA.

Birlasoft serves a diverse range of industries including

-Automotive, banking, manufacturing, capital markets, insurance, media and entertainment, energy and resources, life science and healthcare, and utilities.

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