HCL Tech results disappointing; overweight on Infosys: IIFL

Aniruddha Mehta of IIFL says that the trend of stellar performances from Infosys and TCS was expected to reflect on HCL Technologies too. However, reduced revenue lopsided growth and driven by infrastructure management services (IMS) is disappointing, he tells CNBC-TV18.

Meanwhile, he recommends moving investing in Infosys on better valuations. It is a good time to become slightly overweight on the company, Mehta adds. In the midcap space, he is positive on MindTree, KPIT Cummins, and Persistent Systems. Also read: Worst of earnings not behind us; IT safe haven: Geosphere Below is the edited transcript of his interview to CNBC-TV18. Q: HCL Technologies’ revenue growth, although met street expectations, has not been as good as some of its peers. How would you approach that stock now? A: The growth of 3.5 percent is the lowest amongst the peers. On that, the growth was lopsided with driven by only infrastructure management services (IMS) business. We were expecting a broader based growth and considering the beat that we have seen on both Infosys and TCS, we were expecting the same on HCL Tech. So, it is a bit disappointing on that front. Q: Will the valuation gap between Infosys and Tata Consultancy Services (TCS) start to get narrowed? Is it a more prudent idea to put money into or rather expect Infosys to do better than TCS purely because of valuations? A: On a valuation front, it would be more prudent to move money towards Infosys from TCS. It is a good time to become slightly overweight on Infosys. Growth has slowly started coming on the company and in the demand environment. Overall, there is a strong momentum that we are seeing across companies. The kind of headroom in the margin and growth differential should narrow both with TCS and other players in the industry. So, we are positive on Infosys after the results. Q: MindTree did well; Tech Mahindra has been one of the big movers off late. Do you like anything in the space? A: On the midcap space, MindTree has come out with a strong set of numbers both on the revenue front and operating margin. Project engineering business was a pain point the last year. It has started growing. In last couple of quarters, it has shown good growth and should continue to do well going forward. Barring the Q3, which is generally a weak quarter especially for the project engineering vertical, the growth differential of midcap players with large cap should reduce especially from players like MindTree. We also like companies like KPIT Cummins and Persistent Systems which are our top picks in this space.