The Unsung Heroes of Tech: Why One Brokerage Sees Big Upside in Zensar and Birlasoft

In the often-turbulent seas of the stock market, finding true north can be a challenge. And for the IT sector, specifically, recent global headwinds have certainly introduced a cautious hum. Yet, even amidst this prevailing sentiment, discerning eyes are always at work, spotting potential where others might see only uncertainty. Indeed, one such keen observer, the reputable brokerage firm Motilal Oswal, has quite emphatically pointed towards two midcap IT players — Zensar Technologies and Birlasoft — suggesting they are poised for a significant climb.

It’s not just a hunch, you see; it’s backed by solid analysis and a deep dive into their recent performances and strategic trajectories. Motilal Oswal believes these two aren't just surviving but thriving, ready to deliver impressive returns ranging from 16% to a robust 33%.

Let’s first consider Zensar Technologies, which has caught the analyst's attention for a projected 23% upside, with a target price set at Rs 700. Why the optimism? Well, it boils down to an enviable string of improved deal wins and, crucially, a resilient demand environment for its services. Looking back at the third quarter of fiscal year 2024, Zensar reported a commendable 5% quarter-on-quarter growth in constant currency revenue. What’s more, their EBIT margin expanded by a healthy 100 basis points, reaching 14.8%. This isn't just about raw numbers; it speaks volumes about operational efficiency and the company’s ability to extract value. Motilal Oswal views Zensar as a clear beneficiary of the ongoing global digital transformation, boasting strong growth across high-tech, manufacturing, and even the often-stable BFSI sectors. And honestly, management's commitment to sustaining these robust margins is certainly a confidence booster.

And then there's Birlasoft, which seems to be charting an even more ambitious course, with Motilal Oswal forecasting a whopping 33% upside and a target price of Rs 890. Here too, the narrative is compelling: strong demand coupled with consistent, robust deal wins. While their Q3FY24 constant currency revenue growth was a slightly more modest 2% quarter-on-quarter, the EBIT margin still showed a respectable 50 basis points expansion, landing at 14.6%. But perhaps the most exciting part, the real kicker, is the management’s guidance for the coming quarters. They anticipate a steady 50 basis points quarter-on-quarter margin expansion for the next two to three periods. That kind of predictable, incremental improvement is gold in an unpredictable market, underscoring their operational leverage and efficiency. Analysts at Motilal Oswal believe Birlasoft is exceptionally well-positioned to capitalize on the sustained demand for digital and cloud transformation initiatives globally.

Now, a quick glance at the broader IT sector context. Motilal Oswal, for the industry as a whole, maintains a rather 'Neutral' stance. Why? Well, it's those aforementioned macro headwinds, which are, frankly, casting a shadow on discretionary spending in the near term. But is it all doom and gloom for tech? Not at all. The long-term prospects remain undeniably strong, especially for mid-cap players like Zensar and Birlasoft. They often possess a certain agility, a nimbleness, that allows them to adapt quicker and perhaps even capture niche opportunities more effectively. Their strong deal pipelines and comparatively attractive valuations, you could say, make them compelling picks even when the big players face a little more friction. So, while the larger IT narrative might still be unfolding, these two mid-cap gems are certainly shining bright.