Midcap IT shares surge; LTTS, Aptech, Mphasis, RS Software rally up to 20%

L&T Technology Services soared 11% to Rs 1,635 on Monday, extending its Friday's 7% gain on the BSE.

Shares of midcap and smallcap companies have rallied by up to 20% on the BSE on back of heavy volumes. L&T Technology Services (LTTS), Aptech, RS Software and HCL Infosystems were up more than 10% each, while Ramco Systems, Mphasis, KPIT Technologies, Sonata Software and NIIT gained in the range of 4% to 7% on the BSE.

In comparison, the S&P BSE Sensex was trading flat at 34,749 points at 01:02 PM.

LTTS has soared 11% to Rs 1,635 on Monday, extending its Friday’s 7% gain after the company said that its board will meet on October 25, 2018, to consider the unaudited financial results of the company for the quarter and half-year ended September 30, 2018 (Q2FY19) and to declare interim dividend, if any.

“We expect LTTS to report steady growth and model 4% QoQ USD revenue growth for the quarter. Traction in Process Industry and ramp up of the large deal in Aerospace vertical is likely to aid growth. Headwinds from wage hikes in the quarter. However, tailwinds from INR depreciation would aid margins,” Prabhudas Lilladher said in the quarterly preview.

“Among midcaps, NIIT Technologies, Mindtree looks attractive. We like LTTS within the engineering design services. Cyient is also trading at reasonable valuations. Hexaware has upgraded to Neutral post the steep correction from the peak,” it added.

Most of the midcap and smallcap IT stocks had corrected between 10% and 20% from their respective highs recorded in September 2018.

“Midcap valuations, generally, are factoring growth acceleration and margin expansion and have limited scope for disappointment. Further, rising per employee costs could limit earning upgrades and remains a key risk in the near term,”the analyst at Equirus Securities said IT sector note.

“The usual second-quarter seasonal strength, coupled with the benefits from a favorable currency, is likely to drive a continued recovery for the technology sector. INR depreciation and an improved performance are likely to act as margin tailwinds, driving stronger EBITDA growth. Also, with lower hedge gains being more than offset by sharp translation gains, PAT growth would come in even better,” Motilal Oswal Securities said in Q2FY19 results preview.