The brokerage firm, Morgan Stanley has weighed in on India’s midcap IT landscape, offering some highlights into the sector’s growth and stock preferences. According to the brokerage, the IT industry is entering a “transition phase” with revenue growth expected to moderate in the near term.
Among midcaps, Coforge emerges as a strong contender. The brokerage sees large deal wins and an expanding client base as key drivers for the company’s sustained growth.
Why Coforge is a preferred bet
The brokerage maintains a bullish outlook on Coforge, citing its domain expertise, deal momentum, and expansion into newer service lines and geographies.
As per the brokerage, “Coforge is well-positioned to capitalise on the evolving technology cycle, acting as a challenger in the sector.”
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Furthermore, the brokerage house expects Coforge to lead in revenue growth, outpacing competitors like MphasiS in the midcap space. In addition to this, its shift towards larger clients and increased deal velocity adds to its long-term growth potential.
Morgan Stanley on Coforge: Valuation and price targets
The brokerage firm has adopted a profitability weighted approach to assess Coforge’s stock trajectory. The firm uses a discounted cash flow (DCF) model with a cost of equity of 12.3% and a terminal growth rate of 5.5%.
Here’s how the price targets play out:
Bull Case: Rs 11,850 – Strong revenue growth, operational leverage, and margin expansion.
Base Case: Rs 8,950 – Steady revenue growth with gradual margin improvement.
Bear Case: Rs 4,750 – Moderate revenue growth with stable margins due to macro or client-specific risks.
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The brokerage notes that growth is becoming polarised, with select companies benefiting from company specific catalysts. The brokerage highlights that valuation multiples will favour companies showing top line growth, especially in a weaker revenue environment.
While the overall IT sector is likely to face a prolonged phase of slower growth, Morgan Stanley remains optimistic about certain players navigating this phase better than others.
As per the brokerage report, “Coforge’s valuation premium over larger IT firms could expand,
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