Stock Picks: 5 Stocks Show Consistent Score Improvement with 36% Upside Potential

Market analysts have identified five stocks showing consistent score improvement with upside potential reaching up to 36%, as the Q3 earnings season continues to shape market dynamics. The selection comes amid choppy market conditions influenced by earnings results and ongoing geopolitical developments.

Market Conditions and Earnings Impact

The current market environment reflects mixed signals as both benchmark indices Nifty and Sensex, along with broader market breadth, navigate through Q3 earnings announcements. Market analysts note that conditions are expected to remain volatile as companies continue reporting their quarterly results.

Two key market indications have emerged in recent trading sessions, suggesting underlying market sentiment shifts. The first indication points to elements of over-pessimism developing in specific market segments, creating potential opportunities for selective stock picking.

IT Sector Performance

IT stocks have demonstrated notable resilience and strength during this period, with many companies in the sector witnessing strong upward movement. This performance has occurred on days when IT companies announced their quarterly results, suggesting investor confidence in the sector's fundamentals despite broader market uncertainty.

Sector Performance:	Recent Trend
IT Stocks:	Strong upward movement
Market Breadth:	Choppy conditions
Benchmark Indices:	Mixed performance

The IT sector's performance stands out as a bright spot amid the current market volatility, with investors responding positively to earnings announcements from technology companies.

Stock Selection Criteria

The five identified stocks have been selected based on consistent score improvement metrics, indicating fundamental strength and potential for continued outperformance. The upside potential of up to 36% reflects analyst expectations based on current valuations and business fundamentals.

Key factors contributing to the stock selection include:

Consistent improvement in analytical scores
Strong fundamental metrics
Potential for outperformance in current market conditions
Attractive risk-reward ratios

Market Outlook

As the Q3 earnings season progresses, market participants continue to assess company performances against economic backdrop and geopolitical factors. The identification of over-pessimism in certain market segments suggests potential opportunities for investors willing to take selective positions in fundamentally strong companies.

Indian IT stocks faced broad-based selling pressure on Thursday, January 9, 2025, as investors turned cautious ahead of third-quarter earnings announcements scheduled to begin Monday, January 12. The sector's decline came after two consecutive sessions of gains, highlighting market nervousness around upcoming financial results.

Market Performance and Key Movers

The Nifty IT index bore the brunt of the selling, declining nearly 2.00% during Thursday's trading session. Nine of the ten constituent stocks traded in negative territory, with only HCLTech managing to buck the trend with a modest 0.70% gain.

Stock	Performance	Change (%)
Oracle Financial Services	Top Loser	-3.00%
Persistent Systems	Decline	-0.60% to -2.80% range
LTIMindtree	Decline	-0.60% to -2.80% range
Infosys	Decline	-0.60% to -2.80% range
Tech Mahindra	Decline	-0.60% to -2.80% range
MPhasis	Decline	-0.60% to -2.80% range
TCS	Decline	-0.60% to -2.80% range
Wipro	Decline	-0.60% to -2.80% range
Coforge	Decline	-0.60% to -2.80% range
HCLTech	Gain	+0.70%

TCS and Infosys emerged as significant contributors to the Nifty 50's downside around 2 PM on Thursday. TCS shares snapped a two-day gaining streak, with trading volumes reaching ₹1,100.00 crore during the session. Notably, 66% of TCS shares traded were marked for delivery, indicating long-term investor interest despite the decline.

Upcoming Earnings Calendar

Major IT companies are set to announce their third-quarter results starting Monday, January 12. The earnings calendar includes industry heavyweights TCS, Infosys, HCLTech, Tech Mahindra, and Wipro, making this a crucial week for sector performance and investor sentiment.

Brokerage Outlook and Analyst Views

Brokerage firms have expressed mixed to cautious views on the IT sector ahead of earnings. Jefferies highlighted potential risks, stating that Indian IT stocks face the possibility of earnings downgrades in financial year 2027, which could negatively impact price-to-earnings multiples.

Jefferies Top Picks:

Largecap space: Infosys and HCLTech
Midcap space: Coforge, Sagility, IKS, and MPhasis

The brokerage noted that midcap picks have potential for earnings per share growth at a compounded annual growth rate of 14% to 27% between FY26-28.

CLSA adopted a more cautious stance, recommending investors reduce IT positions following the recent rally. The firm expects third-quarter earnings to remain "highly soft" and made several rating changes:

Company	Previous Rating	New Rating	Action
HCLTech	Outperform	Hold	Downgraded
Tech Mahindra	High Conviction Outperform	Outperform	Downgraded
Tech Mahindra	Focus List	Removed	Removed from focus

CLSA cited concerns about Tech Mahindra's revenue growth recovery over the past 18 months, noting it has been in line with expectations rather than exceeding them. Despite the downgrades, CLSA maintains preferences for Persistent Systems and Coforge in the midcap space, while Infosys and Tech Mahindra remain preferred largecap picks.

Market Context

The IT sector's decline reflects broader market caution as investors await quarterly results that could set the tone for the sector's near-term performance. With earnings season beginning Monday, market participants will closely monitor revenue growth, margin trends, and management commentary on demand outlook across key geographies and verticals.