Moneycontrol Bureau
An uncertain outlook on the earnings of IT companies in general make large cap companies in the sector appear a safer bet. But these could well turn out to be value traps, cautions Mohit Jain, IT analyst at Anand Rathi Shares and Stock Brokers.
“We believe that the visibility of quarterly earnings for IT companies (including large caps) is on a decline for various reasons,” writes Jain in his report.
“Also, in times of transition, the traditional wisdom of switching to large caps,and valuation arguments to avoid midcaps as an asset class might not work well for investors,” the report says.
Jain recommends increasing exposure to differentiated midcaps like Persistent Systems or companies in special situations like Hinduja Global or KPIT where the cushion provided by valuation is too high to be ignored.
He is cautious on large caps, with the exception of Wipro, which reported decent numbers in FY15.
“We think that overall multiples of large caps (except Wipro) should come off as the trading multiples factor in increased volatility in revenues and earnings. This may also turn out to be a time correction wherein stock prices essentially stay range bound as EPS picks up and multiples turn more reasonable,” says the report.
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