Gautam Sinha Roy of Motilal Oswal Securities told CNBC-TV18 that HCL Tech will be his top pick as the earnings season starts next week.
The weak rupee is surly working in favour of the IT companies as Q1 earnings season draws near. Gautam Sinha Roy of Motilal Oswal Securities is bullish on HCL Tech and Tata Consultancy Services (TCS) is his second preference in that space. He does not expect much from Infosys as of now.
He told CNBC-TV18 that United Spirits and Lupin will also be in his preference list. United Spirits does not look like it will give good returns in the coming week, but from the long term perspective he finds the stock interesting.
Below is the verbatim transcript of his interview to CNBC-TV18
Q: IT space will be the key focus next week as we start off with the Infosys earnings. In general what is your expectation from the sector itself and how would you be positioned on individual stocks? Any buy calls or any accumulate calls on individual names?
A: Within the IT space there are a couple of factors which should continue to impact performance of the space. One is the rupee depreciation that we are seeing. This should help the business models of these companies and improve profitability over a period of time.
That apart the discretionary spend growth that we are expecting in the beginning of the year doesn’t seem to be coming back as has been highlighted by Accenture again in its latest release. So, between these two diverse factors what we like is the more commoditised players like HCL Tech. There we expect earnings per share (EPS) growth to be continue to be strong. Valuations are also attractive. So, HCL Tech will be our top pick heading into the results season.
We would not expect any positive surprise from Infosys as of now because of delays in recovery in the discretionary spend environment. So, we would continue to be positive on the space, but prefer HCL Tech and Tata Consultancy Services (TCS) as a second preference.
Q: Last week we saw lot of stocks that were involved with either stake buys or open offers. So, names like Firstsource was up about 30 percent, Mangalore Chemicals where we saw Deepak Fertilizers buying stake and United Spirits as well because of the Diageo news. Among these three stocks are there any names that you would accumulate right now?
A: Its just coincidental that all three events have occurred together including Hindustan Unilever (HUL) in the past week.
United Spirits is one name which has been positive for a long time. There is a lot if support from the factor that there is a ready and willing buyer who wants to acquire the company and take a majority stake there. Only 25 percent has been acquired or the stake is only 25 percent till now. So, there is a lot of room to go there. Also there is an expectation of long term restructuring and re-rating of the business per se with profitability expected to improve significantly.
So, that is one bet that I would be willing to take from a buy perspective. However one might have to be patient there, it might not necessarily give you very good results in the next week.
However, for one year holder United Spirits should give good returns.
Q: You have picked up Lupin as a stock idea for next week. That stock has been one of the biggest gainers in 2013. What was your view on how much incremental upside this stock can see and what kind of a target price you would have?
A: This stock has been one of the favorites since the beginning of the year and we continue to like it. May be from a near term perspective we should expect another 7-8 percent kind of upside, but the fact is that in a very likely choppy market we have US non-farm payroll data coming in. We don’t know how the broader market might behave next week from that perspective.
So, in a choppy market good quality defensive is something that one should always look at. Lupin fits the bill perfectly here because not only it’s a defensive pharma stock, but also is delivering good results. Management is out there guiding those results, which will continue to be good.
All their business and factors which affect the business all of them seem to be positive. So, lot of positive tailwinds for this stock. That is the main reason why we continue to like this stock at this point of time.