How to Filter Best IT Stocks?

Last Updated on Sep 7, 2023 by Anjali Chourasiya

One of the most important sectors in India is the IT sector. It is one of the largest contributors to the country’s export revenue. Besides this, India is the largest IT services provider globally. When looking into investments, several publicly listed IT companies are doing good in terms of profit. Let’s understand IT stocks in detail, how to evaluate them, how to find the best IT stocks using Tickertape and a list of top IT stocks on NIfty 50.

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.

There are micro sectors within the information technology space, 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. 

On Tickertape Stock Screener, IT stocks are categorised into six categories: Communication & Networking, Electronic Equipment, Technology Hardware, IT Services & Consulting, Outsourced services, and Software Services. Now, let’s understand how to evaluate IT sector stocks.

How do you evaluate IT stocks?

Apart from the company’s fundamentals, the following are some metrics that you can use 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 to gross profits alone. Because TCS can post a higher gross profit than Mindtree, the actual picture will be revealed by comparing gross profit margins. Companies with rising gross profit 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 worldwide and earning in foreign currencies. Earnings from abroad are substantial because the Rupee has depreciated significantly over the years, 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 the price-earning ratio and price-to-book ratio. In both the ratios, the thumbs rule says- the lower, the better. 

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

Tickertape Stock Screener has over 200 filters, which helps you filter and pick the best stock in minutes. Here’s how to use the Stock Screener:

Step 1: Launch the Stock Screener

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

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

Step 4: Click on the ‘Add Filter’ button to select key parameters that can help you analyse a stock

Step 5: Once you have added all your desired filters, go to 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.

Step 7: If you want to save the screen for the future, you can simply click “Save” at the top of the filter panel.

You can also use different Stock Universes to shorten your list of research stocks. Let’s have a look at an example.

IT sector stocks listed on Nifty 50

Note: The IT sector stocks listed on Nifty 50 in India are derived using the Tickertape Stock Screener. The data is as of 7th September 2023, and the parameters are as follows. 

• Stock Universe: 
• Sector > Information Technology > All
• Market Cap – Sort from highest to lowest
• 5-yr Average Return on Investment
• Debt to Equity

You can choose over 200 filters and pre-built screens and create your custom filters and universe. Further, there are pre-built screens which are goals and parameters specific like ‘Get, Set, Fly!’ lists low-expense ETFs for short to medium-term investments to fund your trips, while ‘Momentum Masters’ lists companies that are experiencing strong price momentum. 

Conclusion

The 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 potential, and stocks from the IT sector can occupy the driving seat to guide your portfolios to record highs. That said, there are certain risks which, as an investor, you should understand. From skyrocketing valuations to regulatory scrutiny, the tech space is full of challenges as well. 

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

FAQs

What are the best midcap IT stocks for the long term? 

Here are the five best midcap IT stocks for the long term in India:

• Persistent Systems Ltd
• Tata Elxsi Ltd
• Coforge Ltd
• L&T Technology Services Ltd
• Mphasis Ltd
• Honeywell Automation India Ltd
• Oracle Financial Services Software Ltd

Note: These are derived using Tickertape Stock Screener, and the data is as of 7th September 2023. The parameters used are as follows. You can sort the list using your preferred parameters as well. 

• Stock Universe: Nifty Midcap 100
• Sector > Information Technology
• 5-yr CAGR: Mid to High – Sorted from high to low (Positive)
• Net Income: Positive – Set the lower limit to Zero
• Debt to Equity: Set to Low

Is it worth investing in IT sector stocks in India? 

Most of the IT sector companies have a global presence and contribute heavily to the country’s export revenue. IT stocks have a dominant presence in the Indian stock market and carry the potential to become the most rewarding sector. However, irrespective of the sector you are interested in, it is important to consider your investment objectives before investing. Talk to your financial advisor and make a choice. 

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Anjali Chourasiya

I am a finance enthusiast who loves exploring the world of money through my lens. I’ve been dedicated to building systems that work and curating content that helps people learn.

As an insatiable reader and learner, I’ve spent the last two years exploring the world of finance. With my creative mind and curious spirit, I love making complex finance topics easy and fun for everyone to understand. Join me on my journey as we navigate the world of finance together!

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