Best Technology Stocks to Buy in India 2024

A few years back a popular question in quiz competitions was ‘which company is India’s largest employer’. The answer was and still remains ‘a technology company called Tata Consultancy Services’. Technology companies helped changed the economic landscape of the country by generating employment for millions and bringing in huge amount of forex. They also generated generous returns for investors. 

Best 5 IT Sector Stocks

What are Technology Stocks?

There are many companies in India that deal with technology, especially software. These are mostly called technology stocks. There are numerous technology stocks listed on Indian exchanges, from large cap to small cap. Many of them are also part of benchmark indices –Nifty 50 and Sensex. They also have devoted indices for themselves Nifty IT. 

Why Invest in Technology Stocks?

Many technology stocks have already made many Indian rich over the past two decades and they still present several compelling reasons for investment.

Digitisation: Post COVID world is experiencing a digital revolution, with an increasing number of businesses and consumers adopting digital technologies. This shift is further driven by rise in internet usage, a growing young population, and government initiatives like Digital India. This has helped technology grow their revenue and find new clients. 

Overseas clients: Indian technology companies derive a chunk of their revenues from overseas clients. This lends them a pool of steady earnings as these clients have deep pockets and a lot of potential for further spending on technology upgradation.

Cash rich: Most tech companies of India are cash rich allowing them to take advantage of any M&A opportunity in India and abroad. 

Defensive Stocks: Tech stocks often show resilience and potential for growth even during economic downturns and are known to be defensive stocks. It means they are usually piled up when other stocks are going down. 

Buyback and dividend: Many technology stocks have been offering generous buybacks and dividend over the past few years to reward investors. 

However, it's important to note that investing in tech stocks also involves risks, such as market volatility, rapid technological changes, and regulatory challenges. 

List of Top 10 Tech Stocks to Invest in India

Tata Consultancy Services: India’s largest software exporter recently released its third quarter earnings that showed better than expected performance on many fronts despite headwinds on margins. The stock price is currently above short-, medium- and long-term moving averages as well as near 52-week high. Brokerages have also upgraded the stock in past three months, it has no debt, and has also seen increasing investment from FPIs. On the flip side there is pressure on profit margin.

Infosys: India’s second largest software exporter, Infosys recent results have given enough reasons to believe that the tech juggernaut may carry on in India. The company has also opened different divisions to take advantage of various new opportunities in segments such as AI, cloud computing, VR etc. On the charts, the stock price is above short-, medium- and long-term moving averages as well as near 52-week high. The stock also showed positive breakout above first resistance and has earned upgrades from brokerages. 

HCL Tech: The stock is near 52-week high and above short-, medium- and long-term moving averages. The book value per share has also been improving for the past two years. The stock also showed positive breakout above first resistance and has earned upgrades from brokerages.

Tech Mahindra: On the charts, the stock price is above short-, medium- and long-term moving averages as well as near 52-week high. The stock also showed positive breakout above first resistance and has earned upgrades from brokerages. 

Mphasis: The stock has seen rising interest from FPIs as the company has low debt and zero promoter pledge. Its RoCE and RoE have improved also improved in the past two years. While its financials have been under pressure, net cash flow has improved. 

L&T Technology: The stock is near 52-week high and above short-, medium- and long-term moving averages. Its RoCE and RoE have improved also improved in the past two years. It also has high Piotroski score with ROE)and EPS Growth. Brokers have upgraded the target price on the stock in the recent past. 

Nazara Technologies: The gaming-focused tech company has seen a lot of erosion in prices in recent past. This, many analysts say has led to attractive valuations, providing the right entry price.  The company has low debt and promoter pledge, rising RoE and ROA, earnings target price upgrades from brokers. However, the government’s politics towards tax on gaming /gambling needs to be watched out for.  

Happiest Minds: The company was formed by many disgruntled founders of Mindtree when it was taken over by L&T Tech. It built an impressive portfolio of clients in a short time. The stock has been under pressure due to increased promoter pledge and a fall in MF holding. The stock is below short-, medium- and long-term averages. However, strong financials are one of positives. 

Tata Elxsi: The stock has been under pressure lately and has seen negative breakdown from third support level. It, however, still has some upgrades from brokerages and seen return on equity improving since last two years. The company has zero promoter pledge and no debt on its books. 

Info Edge: The company runs various portals on recruitment, matrimonial, real estate and education services. The its stock is near 52-week high and above short-, medium- and long-term moving averages. It has a low PE ratio and has earned target price upgrades from brokers.

Factors to Consider Before Investing in Technology Stocks in India

Technology stocks can be an exciting avenue for investors looking to tap into one of India’s fastest growing sectors. As digital revolution is reshaping the world’s landscape, technology companies offer potential for significant growth. However, like any investment, there are several factors to consider before putting funds into technology stocks:

Financials: Check the fundamentals of the technology company that you plan to invest in carefully. The company’s balance sheet and cash flow statement need careful analysis. 

Client diversity: A company must have clients in diverse geographical locations and with deep pockets that are willing to spend on technology upgradation. 

Technical: If the valuation of a technology company is already very high, then one should be careful about investing in it. One should also look at other factors such as moving averages, support and resistance for each stock before investment decision. 

M&A capabilities: Many Indian listed companies are eyeing smaller technology startups in India and abroad for acquisition. A company with good amount of dry powder or funds to buy these startups will have an upper hand in the market.

Margins: Technology companies usually command high margin. Any technology stock that has been able to maintain margin above 20% is usually a better bet. 

R&D Investment: Technology companies that invest in R&D are often better positioned to innovate and stay ahead of the competition.

Market Saturation: Consider the level of competition within specific tech sectors. Highly saturated markets might offer less growth potential compared to emerging tech niches.

Management Quality: Many legacy technology companies of India have been struggling with top leadership team. One should look for technology stocks that has steady top management. 

Emerging Technologies: Keep an eye on emerging technologies such as AI, blockchain, IoT and how the company is positioned to take advantage of these trends.

International Operations: For tech companies with global operations, consider geopolitical risks and the potential for international growth.

Currency fluctuations: As many tech stocks earn most of their earnings from overseas clients, one has to be watchful of movement in rupee-dollar and other currency pairs.

Performance Overview of Indian Technology Stocks

Also read about: Best Chemical Stocks in India 2024

Conclusion

The Indian technology sector has still not lost the sting and the growing digitisation since the COVID pandemic has given it a shot in the arm. The tech companies are also fast adopting to the emerging solutions of AI, robotics and cloud computing and in fact these offer them more opportunities than threat. However, investors should always do proper due diligence on each stock before investment.