The Indian IT sector contributed 7.5% to GDP in FY23 and is expected to contribute up to 10% in the next financial year. The IT sector provides many services, some of which are software development, business process outsourcing, consulting services, etc.
In the current fiscal, the total revenue of the Indian IT industry is all set to reach 245 billion dollars. The Indian IT sector is estimated to export $194 Bn worth of services in FY24. This sector employs 5.4mn people. So, let us understand which are the best IT sector stocks for the long-term ?
Overview of the Indian IT sector
The IT sector is one of the fastest-growing sectors of the Indian economy. This industry will play a major role in making India the third-largest economy by 2030. IT companies in India are famous primarily for their innovation and low-priced services.
The latest developments in the technology industry include data centres, cloud computing & artificial intelligence. The IT companies are investing heavily in these areas. Indian tech companies serve a broad list of clients in various countries like the US, UK, etc.
The Indian technology industry is on track to double its revenue to $500 Bn by 2030. This growth-oriented mindset positions the Indian IT sector as an important player in the shift toward a digitally connected world economy.
Why invest in the Indian IT sector ?
- High growth potential: Just 52% of individuals in our nation have access to the internet, despite the enormous unrealized potential of this sector. Due to the rising demand for IT services, companies are heavily investing in AI, data centres, cloud computing capabilities, and machine learning.
- Strong Global Demand:The services of Indian IT companies are in huge demand because they are cheaper and faster, Hence, they have been receiving orders from Fortune 500 companies. Also, businesses in foreign countries are outsourcing their IT departments to India for the same reason.
- Economic Resilience: Revenues of IT companies are split between domestic and international equally so they are less prone to fluctuations in either domestic or international markets. The IT sector is also one of the sectors with the highest profit margins compared to most other sectors of the economy.
- Skilled workforce and competitive advantage: Compared to the international technology markets Indian workforce is highly skilled and comparatively cheaper. Hence, the foreign businesses prefer to outsource the IT and consulting services to India.
Key considerations before investing in IT stocks
- High competition: High competition due to the changing technological environment; Technology is a field where things change very rapidly. With the fast pace of changes, what is relevant today may not be relevant a couple of years from now. Thus, IT companies have to constantly keep upgrading themselves to keep up with the market demand.
- Talent Retention: The top engineers in India frequently go overseas to work in order to compete with the pay offered by those companies and grow in their professions. Indian IT companies have to spend a lot of money to retain talent.
- Currency exchange rate: Exchange rate fluctuation can affect Indian IT companies adversely. These businesses’ exports sharply decline as the value of the Indian rupee increases, which has an impact on their profitability.
Also read: The world of currency fluctuations: How does it impact your investments?
- Regulatory and policy framework: IT companies are often subject to government intervention due to data privacy laws and cyber security. For example, Facebook was forced to pay heavy fines due to a lack of data privacy. This can also happen to Indian companies.
Top 5 Indian IT stocks:
Here are the best IT sector stocks to buy for long term, ranked by market capitalization as of November 19, 2024, along with their revenue, net profits, and 5-year average ROE (%) as of FY2024:
- TATA Consultancy Services(TCS): TCS falls under the esteemed TATA group and is the second biggest company in India after reliance industries. The company generates 36.2% of its revenue from the BFSI segment and domestic business earns only 5% of the revenue. The company earns a major chunk of its revenue from abroad.
Also read: Fundamental Analysis of Tata Consultancy Services Ltd.
- Infosys Ltd: With a presence in 56 countries, Infosys has been active for 40+ years. This company offers a wide range of products like consulting, technology services, and next-generation digital services. The company gets 97% of its revenue from exports.
- HCL technologies: HCL is a software company that generates 72% of its revenue from IT & business services. Exports account for 96% of the company’s income. The business operates in more than 60 nations. The company received contracts totaling $9.8 billion in 2023–2024.
- Wipro ltd: A global Information technology, consulting, and business process services, Wipro earned 34.8% of its revenue from the BFSI segment. The company has 21 clients with an order size of more than $100m. The company’s offshore revenue contributes 59.8% to the total revenue.
- Tech Mahindra: Tech Mahindra offers customers a wide range of services ranging from cloud services to data analytics. The company has more than 1100 global customers who are present in 90+ countries.
Also read : Software titans: LTIMindtree vs. Tech Mahindra – Who wins
Financial performance for the aforementioned companies in FY2024
| Fundamental metrics (In ₹ Cr) | TCS | Infosys | HCL | Wipro | Tech Mahindra |
| Sales | 2,40,893 | 1,53,670 | 1,09,913 | 89,760 | 51.996 |
| Expenses | 1,76,597 | 1,17,245 | 85,715 | 73,008 | 46,731 |
| Profit before tax | 61,997 | 35,988 | 20,967 | 14,721 | 4,530 |
| Net profit | 46,099 | 26,248 | 15,710 | 11,112 | 3,310 |
| RoE (%) 5Yr | 43.77% | 29.19% | 23.36% | 17.25% | 16.8% |
Bottomline
Looking for the best IT sector stocks for the long term investment can be a good investment decision. The IT companies have good net profit margins and they have experienced good growth in the past decade.
With the rise of modern artificial intelligence, machine learning, etc the need for IT services is at an all-time high and is all set to rise from here.But, always remember that past returns do not guarantee future returns.
FAQs:
1: Which is the biggest IT company in India ?
TCS is the biggest IT company in India. It has a market capitalisation of ₹14.61 trillion as of November 2024. TCS also has the highest revenues and net profit among all IT companies in India in Q2FY2025. This company is part of the TATA group. This company earned a net profit of ₹46,099 crore in FY24.
2: Which is the largest IT company in the world ?
The world’s biggest IT company is Microsoft. This company is based in the US. It has a market capitalization of staggering ₹260 trillion, which is equivalent to 85% of India’s entire GDP. This company earned ₹6 trillion in FY23.
3: Which Indian IT company shares the lowest P/E and highest dividend yield ?
Answer: Wipro is an Indian technology company with the lowest Price-Earnings ratio of 25 as of November 2024. The highest P/E ratio of 446 belongs to PB fintech. In the Indian IT space, HCL technologies has the highest dividend yield of 2.79% in Q2FY2025.
4: Which are the top 5 IT stocks in India ?
Answer: The top 5 IT companies in terms of market capitalization are TCS, Infosys, HCL, Wipro and Tech Mahindra. These companies also boasts the highest revenues and net profits in the technology industry in India.
5: Which tech company is best for long-term investment ?
Answer: Since TCS is the biggest and most stable company in the IT sector. It should be considered for long term investments. The company has been consistently reporting record breaking results since its inception.
