Strong TCS fails to please; buy HCL Tech: Equirus

Despite Tata Consultancy Services (TCS) posting better-than-expected result for Q4, Bhavin Shah, Equirus Securities continues to believe that IT sector is going to see slow growth going forward. "TCS still might lead the pack, but it is going to be a slow growth scenario over the next three years. We do not see upside in TCS, in fact, our target price suggests further downside from here,” he says in an interview to CNBC-TV18

Meanwhile, Shah believes that HCL Technologies will continue to trade at a very reasonable multiple. "HCL Tech is the only major IT stock in which we see positive, absolute upside," he says.

In case of Infosys, Shah does not see the opportunity to invest in the stock on the back of disappointing earnings posted by the company. He expects positive returns over next 12 months based on the management.

Below is the verbatim transcript of Bhavin Shah’s interview on CNBC-TV18

Q: Do you think the run up in TCS is over because despite good numbers, the stock is still a bit soft, how do you see the stock moving now?

A: TCS continues to deliver good set of results for the last several quarters. However, there seems to be some slowing of momentum over the last two-three quarters. That is beginning to reflect in the share price, especially, after the run up in Q1. We continue to believe that IT sector is going to see slowing growth going forward.

TCS still might lead the pack, but it is going to be a slowing growth scenario over the next three years. With recent appreciation of rupee and the potential for that, there is going to be some money that could also be taken out of IT and TCS also might be experiencing that. We do not see upside in TCS, in fact our target price suggests further downside from here.

Q: Would you have any upsides for HCL Technologies? What would be the target price if you have one?

A: HCL Technologies will continue to trade at a very reasonable multiple. HCL Technologies, similar to TCS, also has certain growth opportunities and because of that it could trade upto Rs 865 over next twelve months. We do see a decent upside in HCL Technologies. In fact, that is the only major IT stock in which we see positive, absolute upside.

Q: What about Wipro? It comes out with earnings tomorrow and now that it is a pure play IT company, what are the earnings per share (EPS) estimates for FY14 and FY15 for Wipro?

A: We have not yet worked out those numbers and will do that post results. In case of Wipro, while there is a fair bit of positive internal movements with respect to the focus, it is not yet materialising in stronger revenue traction. We had a long wait and the stock has done reasonably okay. From hereon again, we do not see any upside in the stock or maybe limited 4-5 percent upside over 12 months.

Q: What kind of a low has Infosys factored in, its now subpar performance compared to the other three big companies or will it come in for more punishment?

A: For people to buy Infosys, a much better entry price is needed. From current levels, the target price is about Rs 2,200. So, for somebody to buy this stock, it has to be below Rs 2,000. I do not know whether it will go there or not, but we do not see the opportunity to invest and expect positive returns over next 12 months based on the commentary and the outlook that company has provided over the next 12 months.