Last Updated on Mar 8, 2022 by Sankeeth Sunny

Thanks to services exported, the IT sector alone contributed 9% to the GDP of India and is expected to grow at double the rate of the GDP. IT companies in India have a global presence. In the list of 25 most valuable global IT services brands, 6 come from India. 

Information technology is one space that always experiences a great deal of volatility. But IT companies are also one of the most promising stocks for investors given their sustainable business model. IT stocks have a dominant presence in the Indian stocks markets and carry the potential to become the most rewarding sector. Sector giants like TCS and Infosys are capable of tinkering with the mood of the markets on their own.

So let us read more on IT stocks and how to filter them using Tickertape Screener.

This article covers:

What are IT stocks? 

IT stocks are the listed companies from the information technology spectrum. These companies sell/outsource services, manufacture technological hardware, provide cloud-based products related to information technology and do much more.

Within the information technology space, there are micro sectors namely, fintech, SAAS companies, IoT providers, and artificial intelligence. Regardless of the sector, the ultimate aim of IT firms is to bring digital transformation across the globe embracing technology. 

How can investors evaluate IT stocks?

Apart from the company’s fundamentals following are some metrics that could be used to draw a line of distinction among IT stocks:

Gross profit margins

Since tech companies vary in size and have different business models it’s not justified to compare them on gross profits alone. Because a certain TCS will always post a higher gross profit than Mindtree, the actual picture will be revealed by comparing gross profit margins. Companies with rising gross profits margins are worth investing in as they carry a higher growth potential.

Exports

IT companies in India are exporting their services and products to clients all over the world and earning in foreign currencies. Earnings from abroad are substantial because over the years Rupee has depreciated significantly and these firms benefit from currency conversion. Thus IT stocks with a majority of their earnings coming from exports are valuable picks. 

Valuations

IT stocks have sky-high valuations, irrespective of the ratios used they’ll always appear to be costly. Investors can find valuations of IT stocks using price earning ratio and price to book ratio. In both the ratios the thumbs rule says- lower the better. Thus, only if valuations are concerned TCS having a PE multiple of 40.91 looks much more costly than HCL technology trading at a PE multiple of 27.99.

Should you invest in IT stocks? 

107% returns in the past 3 yrs certainly present a strong case for IT stocks. These are grown-oriented companies driven by innovation. They always look to bring cutting-edge innovation technology in computing and internet products. Thus in the era where growing technology space has limitless opportunities investors should invest in IT stocks to participate in the growth journey. 

Moreover, it’s a specialty of the IT sector that companies carry almost negligible debt, allowing them to have ample liquidity in their books. The asset base of IT companies is also on the lower side as a result they don’t burn a lot of cash on CAPEX. All these reasons in tandem enable IT companies to achieve higher returns on equity quarter on quarter. 

How to find IT stocks using Tickertape’s stock screener? 

Tickertape has come with a tool that helps you filter stocks from different sectors and evaluate their performance on several parameters. The Screener will provide you with a list of all the recognizable IT stocks listed on the exchange.

Here’s how you can use Tickertape’s Stock Screener:

Step 1: The stock screener can be found on the homepage of Tickertape’s website. Alternatively, it could be accessed from the drop-down menu available on the top left corner of the website.

Step 2: Under “Sectors” option in the filter panel on the left-hand side, select “Information Technology”.

Step 3: To narrow your search you can select from the 6 sub-sectors of information technology from the drop-down.

Step 4: A new screen populates three filters by default. You can add more based on your preferences by clicking on “+ Add Filter Option”. These filters may be Net Income, 3-yr CAGR, and others.

Step 5: Once you have added all your desired filters, go the each one in the Filter Panel and adjust the range as per your requirements.

Step 6: That’s it, you can see all the IT stocks meeting your filter criteria on the Screener – righ-hand side of the screen.

Step 7: If you want to save the screen for the future, you can simply click on “Save” on the top of the Filter Panel.

The filter contains details of four metrics, sub-sector, market capitalization, closing price, and PE ratio. By default, the companies are listed in the descending order of market capitalization. However, you can change this arrangement. By clicking on any of the 4 metrics you can arrange the stocks in the descending order of that metric. For example, you click on PE ratio, the stocks will be arranged in the descending order of their PE ratio.

Tickertape’s advanced screener can help you filter the right stocks that fit your requirements in no time!

Conclusion

IT sector is the home of many exciting budding companies like Tanla Platforms and Mphasis as well as industry giants like TCS and Infosys. The sector as a whole has a lot of potentials, and stocks from the IT sector can occupy the driving seat to guide your portfolios to record highs. 

That said there are certain risks of which as investors you should have an understanding. From skyrocketing valuations to regulatory scrutiny, the tech space is full of challenges as well. 

Thus before investing in IT stocks make sure you understand the companies in the sector, their business models, industry-specific risks, and opportunities.

Ayushi Mishra

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