Despite being positive on Indian IT majors, Infosys and TCS, Kawaljeet Saluja, executive director, Kotak Institutional Equities prefers betting on the former over the latter. Speaking to CNBC-TV18, Saluja says, “Some of the good news is captured in the TCS stock whereas in case of Infosys, there is perhaps still some more upside left purely from operational execution which can drive the stock performance from here on. Hence, our preferred bet will be Infosys over TCS though we have a positive view on both.”
Furthermore, Saluja expects IT companies to deliver soft earnings as Q3 is a seasonally weak quarter.
Also read: Infosys hits record high, brokerages up target post Q3 nosBelow is the edited transcript of Saluja's interview to CNBC-TV18.
Q: A word on Infosys, we have seen almost a 5.5 percent move since the numbers, what is your call on the numbers and do you think the stock can rerate even more?
A: Well, the numbers were pretty good on margins and post the quarterly results we have taken up our earnings estimate on the stock by around 2 to 4 percent from FY14 to FY16. Our fair value on the stock is Rs 4000, valuing the stock at around 18 times 2015 earnings. So yes, I think the stock still has some steam left here.
Q: How have you read all of the qualitative issues with regards to Infosys, have all of the concerns been met with on the analyst side with regards to the recent exits?
A: Not all the concerns have been addressed. I think what the results have done is that at least it has just shown that the operational performance or some operational stability returning in the company. I think the quarter was a touch soft on revenue growth and there could possibly be some impact on the revenues from some of the recent exits we have seen in the last six months or so. That is perhaps what gets captured in some of soft growth in North America. However, when looked at it in totality, I would still say that the results have been good.
Q: What is your expectation from Tata Consultancy Services (TCS) and between Infosys and TCS what would be your preferred bet?
A: In TCS we expect 3.8 percent dollar revenue growth. We expect an EPS of Rs 26.4 and a net profit number of USD 52 billion. TCS continues to lead the industry on growth both from a quarter and annual perspective and we expect the growth momentum to sustain in fiscal 2015 as well. However, when it comes to TCS, it trades at more than 20 times FY15 earnings. Some of the good news is captured in the TCS stock whereas in case of Infosys, where there is perhaps still some more upside left purely from operational execution which can drive the stock performance from here on. Our preferred bet will be Infosys over TCS though we have a positive view on both.
Q: What about the other smaller names, what would you be betting on in terms of earnings?
A: In terms of earnings this quarter will be soft because it is a seasonally weak quarter and earnings will be influenced to a large extent by forex losses, but I think the question is that what will be our preferred picks in the madcap. We have consistently liked MindTree and that continues to be a preferred pick in the midcap space.
Q: Within the top five names what would be your pecking order?
A: We are positive on Infosys and after that our pecking order would be essentially TCS, Tech Mahindra, Wipro and HCL Technologies. We are positive on four of those five names. On Tech Mahindra our target is Rs 2000.
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