Don't see an increase in Infosys' FY10 outlook: JP Morgan

Q: What are you going with in terms of rupee EPS number for the full year?

A: We have Rs 106.5 for FY10 and Rs 126.8 for FY11. Our FY10 earnings per share (EPS) is above their guidance. We don't think that there is going to be any material change to their guidance this year, not yet. Maybe come October they could consider further revisions.

Q: What's your general call on the sector now? Do you have buys out on most of the top stocks in coverage in the IT sector at current prices?

A: We like the sector in general and do believe that over the last several months with a slowdown in demand there has been a fair bit of slag that has been developed in the system. Companies will be able to hire people a lot more easily over the next couple of years. In the meantime, we have had increase in capacity in terms of engineering costs. So, the labour pool availability is going to be significantly improved over the next several years. As far as the demand goes, obviously we have experienced some slowdown. The general offshore trend remains pretty firm. So, we continue to be overall positive on the sector. When you think about individual stocks, Infosys has done well and we have limited near term upside for Infosys per se. We do think that TCS still remains somewhat undervalued and so expect higher upside on TCS. We obviously have Satyam. On this one, we expect meaningful upside and have an Rs 100 price target on Satyam.

Q: What about midcaps. You just alluded to Satyam, if you come down from Infosys, TCS, Wipro and HCL Technologies, how do you look at the next rung in IT now?

A: When I look at the target price versus current share prices there has been a fair bit of improvement in the midcap stocks as well, so that is why we continue to focus on companies where we still feel that there is meaningful upside. I think Satyam and Tech Mahindra come to the mind. There is significant room for margin improvement in Satyam. If you look at it from an FY11 basis, those two looks particularly cheap.

Q: Give us target prices both for Satyam and for some of the other stocks under coverage for you now?

A: We continue to think of meaningful upsides on Satyam. Rs 100 price target versus Rs 70 current price, so that is a pretty big gap. TCS is another one which we find somewhat undervalued compared to Infosys and Wipro. We have an Rs 550 price target on TCS, so that is another one that we would recommend.