Midcap IT stocks sulking on the back of valuation concerns
Midcap IT stocks are under pressure and there are two reasons why IT stocks have been selling off one, the cost of equity is going up in the assumptions as the street prices an aggressive rate hikes from the Federal Reserve this year.
Midcap IT stocks are under pressure and there are two reasons why IT stocks have been selling off one, the cost of equity is going up in the assumptions as the street prices an aggressive rate hikes from the Federal Reserve this year.
Secondly, midcap IT stocks were trading at very high valuations. Many of these midcap IT names had a run up of 100 to 200 percent in 2021, and consequently, they were all trading at peak valuations and much above historical standards and above many of the largecaps as well.
Stocks like Mindtree, L&T Technology, Larsen & Toubro Infotech, have all seen a sell-off in line with the rest of the global technology names and stocks are down 15 to 20 percent so far this year and valuations too consequently have retraced.
Something like an L&T Infotech, which is trading at 48 times forward multiple is now down to 40 times, Mindtree has retraced from 42 times forward multiple now down to 34-35 times.
That said the demand environment for IT continues to be very strong, cloud is a multiyear opportunity and IT companies specifically the midcap IT companies have reported very strong growth numbers in the December quarter with the likes of L&T Infotech, Mphasis all reporting growth rates higher than the largecap peers as well.
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