Best IT stocks in India: A Complete Guide

top it stocks in india

An Overview of the Information Technology Industry in India

In the Indian subcontinent market IT or Information Technology sector is one of the most important and ever evolving sectors and can be regarded as one of the biggest operators of export revenue in the country. 

The overall contribution of this sector to the GDP or Gross Domestic Product is around 7.7 percent and by the year 2025, the number is expected to reach 10 percent. Right now, India as a country can be considered as the largest service provider in the Information technology sector in the world.

It is mainly possible due to the inexpensive yet highly skilled manpower available in the country. India is currently serving 55 percent of the world’s service sourcing market which is estimated at around 185 to 190 billion dollars (38 percent of the total market share). Thus, it is considered the world’s top sourcing destination.

Due to the COVID-19 pandemic, the government all over the world restricted the usual movement of the people in order to stop the spread of the virus and for the same reason companies all over the world initiated ‘work from home’ and set up a particular infrastructure in order to enable daily company operations.

This particular situation presented an enormous opportunity for the entire IT Sector and the companies involved in the IT industry. The IT companies produced a seamless working environment for their employees by continuously developing and updating their infrastructure.

What are Information Technology Stocks?

IT stocks or information technology shares are the shares of those companies that are involved in the information technology business. The primary focus of this sector is to innovate and search for answers and provide solutions for the biggest challenges faced by everyday consumers. Some of the best IT stocks in India are Infosys, Tata Consultancy Services, Mindtree, Wipro, Tech Mahindra, etc.

Crucial Factors to Consider Before Purchasing Top IT Stocks in India

As an investor you should weigh up some specific factors that can help you invest in the best IT stocks in India 2022. Let us have a look at those factors and know more about them in detail:

Services and size of the IT company

Information Technology companies offer multiple services including Insurance, Pharma, Banking and Financial Services, Energy and Utilities, Media and Technology, etc. As an investor, you need to find out if the companies have well diversified services and verticals that can help in the overall growth of the IT company.

If the services provided by the companies are stable and have proper developing elements then investing in those companies will provide you higher returns on investment if you give enough time to the company shares.

Topographical distribution of revenues and earnings of IT stocks

The Indian Information technology companies provide their service all over the world including in Europe, Asia, and the United States. As an investor, you need to be aware of the revenue shared from different parts of the world and simultaneously assess the foreign exchange rate of currency in India. This will give you an insight into the potential earnings and annual revenue of the company.

Financial performance of the IT companies in India

You can use multiple types of stock market metrics such as P/E Ratio, ROE, Cash flow, ROCE, etc. in order to look at different companies’ performances over time. The level of operations and their profit margin will help you understand the overall financial position of the company in the current market scenario. If the company’s finances are strong then it will boost the growth of the company and it will also increase the stock prices of the company substantially over the years.

IT company’s product and services

As an investor you need to evaluate the products of the different IT companies before investing in the best technology stocks in India. The Research and Development department of the company also needs to be robust and productive because the new and innovative products also have an enormous impact on the company's business and stock prices.

A lot of IT companies in India regularly distribute dividends among their shareholders and also prosecute share buybacks in order to return some money to their investors and shareholders. By evaluating the frequency of distribution, the investors can know more about the return on their investments and the stability of their earnings.

Although the financial dealings of the IT companies are good for company shareholders and investors, as an investor you also need to gauge the fact that these companies have enough financial strength in order to support their organic and inorganic development themselves.

Advantages of Buying Best IT Stocks in India as an Investor

Enormous opportunities for growth through export in top IT stocks in India

The majority of the Indian IT companies usually earn their money directly from the foreign market which suggests that these companies receive foreign currencies as their payment. Due to the depreciation of the rupee in 2013, the IT companies have increased income due to currency conversion.

This is one of the main reasons why the IT stocks have increased in demand among investors. According to the NASSCOM, in the upcoming fiscal years, these foreign exports will continue to rise which will have a positive impact on the company stocks and give handsome returns to the shareholders and investors in the future.

Involvement of Europe and US markets for IT stocks in India

For the IT companies in India Europe and the United States are the two biggest markets. It has been reported that only the United States alone has provided two-thirds of the entire foreign currency export which is worth at least 76 billion dollars. 

Moreover, a lot of Indian IT companies are very buoyant about the business environment of the United States meaning that the United States will continue to spend more funds in order to receive the IT services of the Indian companies which in turn will increase the growth and development of the IT companies and their shares. A similar trend can also be seen with European clients.

Growth in the overall revenue in IT stocks 

A lot of IT companies situated in India are very much optimistic about reaching their annual targets and generating enough revenues for the current fiscal year. The entire IT industry will likely see a growth of 12 to 14 percent in their revenues in the current fiscal year.

Moreover, the companies are also adapting according to the demand of the market and offering new services such as data analytics, cloud computing, mobility, social media, etc. This can also be considered one of the main reasons for the growth and development of the best IT stocks India. Additional revenue also means an additional return on investment for the shareholder of the IT companies.

List of top IT Companies in India in 2022

NameMarket Cap (Cr.)P/E Ratio5Y CAGR (%)
Tata Consultancy Services LtdRs. 12,10,706.9231.5922.88
InfosysRs. 6,18,00028.1725.84
HCL TechRs. 2,69,00020.0018.5
WiproRs. 2,32,00019.0017.0
Tech MahindraRs. 98,00016.021.34
Larsen & Toubro InfotechRs. 73,00031.8039.4
MindtreeRs. 48,80029.541.1
MphasisRs. 44,00031.0031.3
L&T Technology ServicesRs. 33,00034.4334.23
CoforgeRs. 23,10036.0013.8

(Price date as per June 23, 2022)

Disclaimer: The securities quoted are exemplary and not recommendatory. Past performance is not indicative of future returns

Important things to remember:

1. Do Not Blindly Follow Hot Tips

No matter how credible the source is, never follow a stock marketing tip blindly without conducting thorough research personally. Always select the stocks after doing proper research and analysis on the performance as well as the companies. While some tips can work out to give you huge benefits, the wrong ones can push you down under the risk pretty quickly. 

2. Eliminate Loser Stocks from Portfolio 

There is absolutely no guarantee that a stock will rise after a great fall. Know that it is extremely important to be practical about what is possible and what's impossible in the stock market. So, upon realizing that a stock is performing poorly in your portfolio, accept your mistake and sell it immediately to prevent further losses. 

3. Don't Exceed Your Investment Budget Abruptly 

While it's true that long-term investments are way better than other forms of investment, you shouldn't exceed your investment budget in a haste. Instead, decide on a fixed amount and invest it across various good stocks. Rather than investing in only one stock, divide your budget evenly across multiple good-performing stocks and shares. 

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