Infosys Options buyers may be looking at loss: Dipan Mehta

After Infosys, India's second-largest software services exporter posted better-than-expected Q1 results, Dipan Mehta, Member of BSE and NSE says keeping dollar guidance intact means the erstwhile IT bellwether will have the full benefit of the rupee depreciation.

He believes the buzz is coming back into the stock. "One can see exaggerated move today as well as over the next few days," he says in an interview to CNBC-TV18. He says Option buyers may be looking at loss because results are more or less in line with street expectations, slightly better. "This time around, the Option buyers may not be able to profit from this strategy of buying the Call and the Put and hoping for a sharp up move or downside move."

Meanwhile, Mehta says investors who are generally underweight on Infosys and overweight on Tata Consultancy Services (TCS), HCL Technologies may again do that recalibration and go back to equal weight in Infosys.

Below is the verbatim transcript of Dipan Mehta's interview on CNBC-TV18

Q: What do you think the dollar revenue looks respectable at 2.7 percent, they haven't changed there guidance though. What kind of reaction should one expect?

A: The full benefit of the rupee depreciation will play out here and in a market where we are looking for new stories to invest in and investors looking at increasing their exposure to export oriented companies, this certainly is coming at the right moment. The markets will react very positively to this result.

One more thing that needs to be considered is that after a long time we are having some stable management considering that there has been lot of churn at the top and Infosys policy of giving all the partners a shot at the CEO, that policy certainly seems to be kept on hold. So, it will be interesting to see what Narayan Murthy has to say as well.

Gradually, the buzz is coming back into the stock and the fact that these results have beaten street expectations would mean that out of the last three quarterly numbers, at least two have been decent. March was a disaster but December and the present quarter certainly are on the positive side.

Therefore, investors who have generally been underweight on Infosys and overweight on Tata Consultancy Services (TCS), HCL Technologies may again do that recalibration and go back to equal weight in Infosys. You need to give it two-three more quarters and if Infosys delivers or slightly beats street expectations for two-three more quarters then certainly we will have the case for a P/E expansion as well. So lots of positives and lots of opportunities over here and we would be now be watching the stock and the company far more closely than what we have done in the past.

Q: You track the Futures and Options (F&O) side of things as well and Infosys was quite active in the last few days especially at 2800-3000 Call level. Do you expect a sharper reaction there because of what was happening on the derivatives side?

A: It is a bit difficult to call but this time the Option buyers may be looking at loss over here because results are more or less in line with street expectations, slightly better.

There are no major positive surprises except for the rupee guidance but that has to be more to do with currency rather than actual performance. Because of what has been happening over the past few quarters where such sharp movements have made buying Options a very lucrative scenario, it will change this time around.

We may see sharp fall in premiums on account of  implied volatility (IV) crashing. May be this time around the Option buyers may not be able to profit from this strategy of buying the Call and the Put and hoping for a sharp up move or downside move.

Q: Do you think all the good news is now priced in with this potential 8-10 percent move for Infosys?

A: Not necessarily. If you see the stock comes back into reckoning then there is scope for P/E expansion and I don't think it is going to be just 8-9 percent increase in EPS. Rupee itself could get 10-12 percent EPS growth and the estimate for EPS could be as high as Rs 185 and then you have P/E expansion as well. So, we are looking forward to a lot of exciting things and management commentary will be important.

These days there is absolute shortage of good quality stocks to invest into the market considering the rupee has depreciated and a lot of domestic stories and interest rate sensitives are no longer attractive. So you could see exaggerated move today as well as over the next few days. So I don't think all the good news has got factored in with just a 10 percent up move.