The Market has corrected 33% from its High of 30,000(Sensex). In the midst of this correction which Information Technology Stocks can one BUY ? Three concerns plague the sector: (1) After telecom and energy, the banking segment is also weakening; (2) Automation threatens the benefits of labour arbitrage; (3) Digital has been a bigger headwind than tailwind so far. Even as we are in a down-cycle, continue to have faith in the long-term growth story of Indian IT services.
Here is a List of Stocks Fundamentally Analysed by Ambit Capital and their Recommendation is as Under,
TCS - We like TCS’s track record of identifying trends earlier than its peers and investing in them. TCS has used JVs/partnerships/acquisitions effectively to enter and eventually dominate new segments; examples include the Nordic market (SITAR), platform BPO (Diligenta) and more recently Japan (JV with Mitsubishi). The stock is trading at 16x FY17E earnings despite FY16 RoE of 35%+, FY15-FY17 EPS CAGR of 11% (should be ~15% in the long-term). Target Price Rs 3050
HCL Technologies We have a BUY stance on the stock due to its better portfolio mix (higher exposure to cost-focused service-lines such as infrastructure management services), stable senior management team, its efficient use of capital and our expectation that recent investments in its business should accelerate organic growth. The stock trades at 13x 1-year forward earnings despite FY15 RoE of 33% and FY15-18 RBIT CAGR of 14%. Target Price: Rs1,150
Tech Mahindra TechM remains one of our top two picks because it is well-positioned to benefit from: (1) margin improvement (similar to HCLT over FY10-FY14, its margins should improve as large deals mature). Current valuations of 11x one year forward
earnings are also muted compared to peers (average of 15x for top-4 India-listed companies). Target Price: Rs700
Please consult your SEBI Registered Adviser before you act.
