History shows that mid-cap IT stocks outperform large caps during high growth periods. As we set out on a phase of revival in demand for the
sector, select mid-cap investments could outperform the overall Indian IT sector. However, the choice of mid caps needs to be dealt with more than a
fair share of caution – growth rates are volatile, margins are weak and smaller companies are increasingly marginalised in the market.
Credit Suisse considers all the important factors that investors would look at into this sector – growth potential, margin upside, share price upside from buyouts, client concentration risks etc. Our factors are mostly quantitative and objective, and have in many cases involved detailed discussions with the companies involved. We then juxtapose rankings on fundamental factors with rankings on valuations to help identify potential investment options.
KPIT Cummins, Nucleus, Polaris and 3i come out as the most attractive on Credit Suisse's framework. In this report, initiate coverage of Polaris (OUTPERFORM), Infotech (OUTPERFORM).
Polaris Target Price is Rs 200 while that for Infotech Enterprises is Rs 440.
