Shares of the AI company specializing in cloud and cognitive services surged nearly 4 percent after Nuvama upgraded its recommendation to buy the stock.
Price Movement
In Thursday’s trading session, the share price of Mphasis Limited surged to an intra-day high of Rs.3,152.3 per share, rising 3.85 percent from its previous close of Rs.3,035.7 apiece.
What happened
Nuvama has revised its rating for Mphasis Limited to ‘Buy,’ citing a potential recovery in the US mortgage market and expectations of an improved macroeconomic environment as the Federal Reserve approaches a rate cut.
The Nuvama report highlighted that the company is at a critical juncture where the factors contributing to its underperformance over the past two years are expected to reverse, potentially leading to significant outperformance.
The recent 25 percent rally in the stock over the past three months has been driven by anticipations of US interest rate cuts and signs of recovery in the US Banking and Financial Services sector.
Nuvama’s target price of Rs.3,500 for the stock suggests an upside of over 16 percent from Wednesday’s closing level.
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Reason for the rating
After two years of subdued performance, Mphasis is expected to rebound as the Fed signals potential rate cuts. Nuvama anticipates a resurgence in Mphasis’s mortgage business, which has a strong inverse correlation with US interest rates.
Given the expected improvements in the US macroeconomic environment, Mphasis’s strategic focus on AI, and a recovering BFS segment, analysts view the company as a prime candidate to benefit from the US interest rate cycle.
Management Commentary
Nitin Rakesh, CEO of Mphasis told Nuvama that Mphasis is taking giant strides to capture early-mover advantage in the AI space. Its client-focused strategy has consistently allowed Mphasis to mine its clientele deeper while diversifying the revenue base, Rakesh added.
Mphasis CEO also expressed excitement about platforms – NeoZeta and NeoCrux – designed to modernize legacy codes and enhance the software development lifecycle.
Revenue Mix
Mphasis’s revenue structure is led by Banking & Financial Services at 47.56 percent, followed by TMT (Technology, Media, and Telecom) at 16 percent, Logistics & Transportation at 13.65 percent, and Insurance at 11.2 percent. The remaining 11.2 percent comes from other sectors, highlighting a strong focus on financial services while maintaining a balanced portfolio.
Company Overview
Mphasis Limited is an India-based information technology (IT) solutions provider specializing in providing cloud and cognitive services, applying technology to help enterprises transform businesses globally.
Written by – Siddesh S Raskar
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