IT valuations can hold; Infosys margins may slip: StanChart

Moneycontrol Bureau

Brokerage house Standard Chartered Securities expects valuations of top tier IT companies to sustain as macro-economic concerns leave investors with limited choices.

So far in 2013, the CNX IT index has risen 18 percent compared to a 5 percent decline in the Nifty, following better than expected third quarter performance from frontline companies in the sector. Market experts do not expect the uptrend to sustain as earnings growth could be decent at best, and not spectacular.

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"While EPS upgrade cycles could stay modest through FY14-IT spend in FS/telecom (60% of revenues) remains focused on cost-optimization-we expect potential corrections to be minor; domestic-factors driven rupee weakness, could also lend down-side support," says the Standard Chartered report.

"HCL stays our key pick on, deal-flow + stable margin = EPS upgrades + re-rating theme. We upgrade Wipro to outperformer; reducing growth differential versus peers + high margin comfort even as expectations stay low. We prefer TCS (though its elevated valuations limit near-term upside) over Infosys where we see potential disappointment on margin defence as a near-term challenge," the report says.