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Before investing in an Indian IT stock, understand how the company earns revenue, examine at least two years of financial statements, read its latest disclosures, assess its valuation against relevant comparisons, and decide whether the risk fits your goals and ability to absorb losses. For IT services firms, also investigate revenue mix, client concentration, margins, deal commentary and workforce disclosures. No single ratio, headline or AI claim can substitute for that company-by-company assessment.
Start with the business, not the share-price chart
SEBI defines due diligence as “the comprehensive and thorough analysis and assessment carried out by investors, before engaging in any investment activity.” For a listed IT company, that begins with being able to explain—in plain language—what it sells, who pays for it and why customers buy it.
Map the company’s revenue engine
Work out whether the business primarily sells IT services, software products or a mix, and identify the main services or offerings it reports. For a services firm, consider whether work is recurring, tied to ongoing client relationships, or dependent on specific projects and contracts. The company’s disclosures may provide the detail needed to distinguish these sources; do not assume that two firms use the same categories in the same way.
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Then ask what drives demand for those offerings and what could weaken it. Identify the customer groups, industries and geographies the company serves where it discloses them. Consider its stated competitors and the economic conditions that may affect growth or share price. These questions follow SEBI’s investor due-diligence guidance, which asks investors to understand a company’s business model, growth prospects, competitors and relevant economic conditions.
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Separate a broad growth story from a concentrated one
Revenue growth is more informative when you can see where it came from. Check whether it appears across service lines, geographies and industries, or relies heavily on a small number of customers, offerings or large contracts. A concentrated source of growth may make results more exposed if that customer, market or contract changes. The disclosures available will vary, so distinguish what the company reports from what it does not break out.
Read the financial statements across multiple years
SEBI’s due-diligence checklist calls for examining at least two years of financial statements. Review the income statement, balance sheet and cash-flow statement together rather than treating a single year or ratio as a verdict. The aim is to see whether the company’s reported performance is supported by cash generation and a sustainable financial position.
Test earnings against operating cash flow
Compare reported profits with cash generated by operations over the period. If earnings rise but operating cash flow does not follow, investigate the explanations in the accounts and management commentary rather than assuming either a problem or a benign timing difference. Working-capital movements can affect cash conversion, so look for changes in receivables and other reported working-capital items and consider how they relate to the company’s revenue and business model.
Look at margins, returns, debt and one-off items together
Track operating margins and returns over several periods. Ask whether movement is consistent with the company’s reported business mix and commentary, or whether unusual items may distort the trend. Review the balance sheet for debt and consider how that position changes over time. Also check whether working-capital needs are rising or falling. A margin or debt figure alone cannot tell you whether a company is attractive: interpret it in the context of growth, cash generation, risk and the company’s own history.
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Be alert to one-off items that make a period look unusually strong or weak. Read the notes and explanations accompanying the statements before treating a change in earnings as a recurring trend. The point is not to produce a mechanical score, but to understand what the reported numbers say about the company’s operating performance and financial resilience.
Assess the share price and valuation in context
SEBI recommends reviewing the latest price and trading volume, historical data, corporate announcements, the price-to-earnings ratio and an estimate of intrinsic value as part of due diligence. These are inputs to an investment decision, not standalone signals.
Use comparisons that fit the company
Consider valuation against the company’s own history and against genuinely comparable businesses. A useful peer comparison needs more than a similar industry label: account for differences in growth, profitability, risk, business mix and accounting. If the companies define segments or operating measures differently, reconcile those definitions before drawing conclusions. A higher or lower valuation multiple is not, by itself, proof that a share is expensive or cheap.
The cited SEBI guidance does not provide a universal acceptable P/E, growth rate, debt level or margin threshold. Avoid turning a rule of thumb into a regulatory standard or a buy/sell cutoff. An estimate of intrinsic value also depends on assumptions; make clear to yourself which assumptions drive it and how the result changes if those assumptions are less favorable.
Use current company disclosures as your evidence base
Read the issuer’s annual report, quarterly results and filings on the stock exchanges. Review corporate announcements alongside the financial statements. Management commentary can help explain plans and results, but compare it with audited figures, segment disclosures and subsequent reported performance. Read documents carefully and keep track of the period each figure covers.
For an example of the kind of company-specific reporting to look for, Wipro’s FY2025-26 annual-report page presents its strategic market units and reporting materials. That is an example of an issuer’s disclosures, not a template that proves another company reports the same measures or uses identical definitions.
Distinguish reported results from expectations
When management discusses demand, contracts, bookings, pipeline or future growth, identify whether it is describing realized revenue, an order or booking measure, a pipeline, or an expectation. These are not interchangeable. Note the company’s definition and period for each measure, and avoid treating forward-looking commentary as revenue already earned.
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Indian IT stocks are not interchangeable. For a services company, inspect the operating detail the issuer actually provides and assess whether it supports the financial trend. Useful areas include reported revenue by service line, geography and industry; client concentration; operating margins; deal or order-book commentary; and workforce measures.
Compare like with like
When evaluating two or more firms, use a consistent set of questions. The table identifies comparison areas and the evidence to seek; it does not prescribe a score or imply that every company publishes every measure.
| Comparison area | What to examine | How to interpret it carefully |
|---|---|---|
| Revenue growth | Growth and its reported sources, including service line, geography and industry where disclosed. | Check whether growth is broad-based or concentrated; segment definitions may differ. |
| Margins and cash conversion | Operating-margin trends and operating cash flow relative to reported earnings. | Consider business mix, working capital and unusual items rather than treating one period as decisive. |
| Balance sheet and working capital | Debt and changes in working-capital needs. | Read these alongside the company’s cash generation and revenue pattern. |
| Customer and market concentration | Client, sector and geography concentration where the issuer reports it. | Consider how much performance depends on a narrow set of customers or markets. |
| Workforce capacity | Utilization, hiring and skills disclosures, using the issuer’s own definitions. | Metrics may not be directly comparable across companies. |
| Valuation | Current valuation relative to the company’s history and relevant peers. | Adjust the comparison for growth, profitability, risk and accounting differences. |
| Forward-looking claims | How much of the investment case depends on forecasts, bookings or expectations. | Separate these from revenue and profit already recognized in reported results. |
Deal commentary and workforce metrics can add context, but neither replaces financial results. Understand what the company counts and the comparison period before using a measure to compare firms or infer future performance.
Evaluate AI claims without treating them as an investment thesis
AI is a relevant diligence topic for technology companies, but a headline or broad industry claim does not establish a company’s ability to earn from it. Look for what customers are buying, whether the issuer reports recognized revenue or instead discusses pipeline and bookings, and whether AI-related work is affecting margins through pricing, delivery costs or investment needs. Consider what skills the company says it needs and what investment it describes.
Infosys’s FY2026 Form 20-F says AI is reshaping the technology industry and identifies wage pressures and the hiring of employees and subcontractors as potential risks to its competitive advantage and profits. This is an issuer-specific risk disclosure, not evidence that every Indian IT company has the same exposure.
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The same filing reports Infosys billable IT services professional utilization of 81.1% including trainees and 84.4% excluding trainees for fiscal year 2026. These are Infosys-specific operational figures, not sector benchmarks or buy/sell thresholds. Do not transfer them to another company or compare them without understanding the issuer’s definition and period.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Check whether the investment fits your circumstances
A company can have sound disclosures and still be unsuitable for a particular investor. SEBI advises matching investments to financial goals, time horizon and risk tolerance, and notes that past performance does not guarantee future returns. Consider whether you may need the money soon, how much loss you could withstand, and whether owning an individual stock fits your overall asset allocation.
Equity prices can fall, and a stock can lose substantial value. NSE’s first-time investor guidance warns that if a company goes bankrupt its stock may be worth nothing. Consider diversification rather than allowing one company or one sector to dominate your portfolio. Liquidity matters too: SEBI identifies safety, returns and liquidity as investment pillars, with allocation depending on goals, risk tolerance, horizon and market outlook.
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- Write down the business in one sentence. Identify what the company sells, who pays for it and the main drivers of demand described in its disclosures.
- Read at least two years of financial statements. Compare earnings, operating cash flow, margins, debt and working-capital needs, and investigate one-off items.
- Review the latest annual report, quarterly results and exchange filings. Compare management commentary with reported results, segment information and corporate announcements.
- Map the IT-services exposures. Check service mix, client and market concentration, deal commentary and workforce disclosures; note where information is not reported.
- Examine valuation using relevant comparisons. Consider the company’s history and suitable peers, while accounting for differences in growth, profitability, risk and definitions.
- Stress-test your own decision. Consider loss tolerance, time horizon, liquidity needs, diversification, asset allocation and tax circumstances before investing.
- Keep records and avoid unsuitable tips. SEBI advises investors to read documents, understand fees and charges, retain account and transaction records, and avoid decisions based on unsuitable tips or luring schemes.
When to seek individualized advice
This checklist helps organize company research; it cannot determine whether a particular security fits your finances, tax position or objectives. SEBI recommends consulting a SEBI-registered investment adviser where appropriate. Individualized advice should account for your circumstances rather than rely on a generic stock checklist.
SEBI also provides a Financial Education Booklet and other investor-learning materials through its education library. Free educational material can help explain investing concepts, but it is not a substitute for advice tailored to an individual situation.
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