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Apr 18, 2013, 01.23 PM IST | Source: CNBC-TV18

Infosys may bounce back; bullish on Cairn, L&T: HDFC Sec

Despite Tata Consultancy Services (TCS) posting better-than-expected result, it does not feature in HDFC Securities' list of top picks. Instead the house accomodated Infosys, which reported disappointing set of numbers in the fourth quarter.

Dipen Sheth

Head-Institutional Research, HDFC Securities

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Despite Tata Consultancy Services ( TCS ) posting better-than-expected result , it does not feature in HDFC Securities' list of top picks. Instead the house accomodated Infosys, which reported disappointing set of numbers  in the fourth quarter. Speaking about the inclusion of Infosys, Dipen Sheth, head-Institutional Research, HDFC Securities told CNBC-TV 18 that the company will find its feet in the next few days.

Interestingly, HCL Tech which also posted good set of numbers, is missing from the HDFC list.

After a steep fall in crude, market analysts are wary about the oil and gas companies. Sheth suggests Cairn India as his top pick since it is least vulnerable to regulatory whims. “The upstream companies keep on contributing to downstream losses and you do not know in what proportion they will do it. Cairn India, to that extent, has the cleanest earnings profile and is most leveraged to crude,” he says in an interview to CNBC-TV18.

On the infrastructure front, Sheth is bullish on Larsen & Tuobro . L&T delivered in extremely challenging times and execution has never been a problem with that company, says Sheth.

Below is the verbatim transcript of Dipen Sheth’s interview on CNBC-TV18

Q: Since markets have responded to Tata Consultancy Services (TCS) today, I see Infosys in your top list but not TCS or HCL technologies. Can you take us through the rationale there?

A: We took the stand before the results came out and it has been challenged significantly by the numbers or the guidance that Infosys mentioned post the numbers. Infosys is a company which is in the process of healing and over a period of time, they will get their act right.

They had their nose in the sand to the extent that they were not compromising on their premium pricing. Some of that was coming off in the last couple of quarters and we were under the impression that they will be able to regain market share and get larger deal-wins.

I am disappointed with what Infosys has done. The stock also tumbled just like a quarter ago when it jumped up 20 percent, it tumbled by 20-22 percent after the quarterly numbers.

It is too early to call for a complete decline in the prospects for Infosys at this point of time. Maybe we need to be a little more patient with them. However, there are some virtues in the company and they will fight back. They are figuring out painfully, their less than compromising stand on pricing may not hold for too long and we are seeing some of that coming off; pricing is down.

It is a good company that will find its feet back in a while; maybe we need to be a little more patient than what we thought three months ago.

Q: The other one you have picked from IT space is Tech Mahindra . Beside the financial performance of the company, there are reports that some of the Satyam shareholders are opposed to both the timing of the merger and the share swap ratio, do you see the company being able to tide over those problems?

A: Yes. This will be a substantially large company. Fifth in the pecking order once the merger comes through with about 86,000 employees. So, that itself should take it out of the midcap valuation bracket and afforded valuations of more than 9 times where it is trading right now. We should be looking at 11-12 times once they get their act in order.

A lot of that has happened. There are contingent liabilities, there are claims and counter-claims. It is in good hands right now. It has fought back admirably from the brink of extinction if you look at the Satyam part of the story at least.

So, there is some faith there as well. It will not make us much popular right now in view of the dynamics that are playing out in the stock but is another instance where a little bit of patience is called for. I would rather be a little early in calling for this patience than chase the price when it moves up.

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