See Infy post more stable margins over 2-3 years: Aberdeen

Infosys, which is set to announce its second quarter numbers on Friday, is expected to post more stable margins over the next two-three years, says Adrian Lim, Aberdeen Asset Management. The company has been lagging in earnings and sales growth over the last two-three years, but there are some fundamental shifts within that stock, he says. He would like to see some stability and some consistency in decision making going forward on the back of reshuffling of leaders within the senior management of the team.

Also Read: Infosys may up revenue guidance; concerns overdone: Kotak

Apart from Infosys, Aberdeen Asset Management also has TCS as one of its top ten holdings. He feels both these companies offer slightly different take on the software engineering business, but both are good companies with strong and deep talent pools. He advises investors to hold them over the long-term.

On the overall market, he is overweight on India. But a more benign operating environment and clearer signs of bottoming out and recovery would encourage him to take larger positions within the market.

Below is the verbatim transcript of Adrian Lim's interview on CNBC-TV18

Q: The market turning around positive on Infosys. What is your sense, you think outperformance is on the cards in the current quarter?

A: A quarter is a difficult time to predict. We do know that Infosys has been lagging in earnings and growth assumptions for sales over the last two-three years but there are some fundamental shifts within that stock. There has been effective leadership enhancement and some reshuffling of the leaders within the senior management levels of the team and it will be nice to see some stability and some consistency in decision making going forward. We do expect a more stable growth environment but whether the stock has run ahead of those expectations or not is very difficult to say but we do expect more stability, more stable margins going forward over the next two–three years or so.

Q: You have also got Tata Consultancy Services (TCS) in your top ten holdings, so between Infosys and TCS, which one do you think offers more upside by way of stock movement in a one year time horizon?

A: One year is far too short. It will be nice to have a one year timeframe but we look at things three-five years out and although TCS has been the steady performer in the last three years or so, if you look at the five years before that, Infosys has been pretty strong too. So, we think that both these companies offer a slightly different take on the software engineering business but both are good companies with strong and deep talent pools and we think that if you hold them over the long-term both companies will do well for shareholders but a one year timeframe is difficult to call.

Q: The other set where you are fairly overweight is the financials; you have HDFC, HDFC Bank and ICICI Bank with you. Would you want to look at any other of the finance stocks?

A: We are always looking, not just in finance but other sectors as well. These three stocks have been holdings for us but we do have smaller stakes in some of the smaller banks as well; we have stakes in Jammu and Kashmir Bank, we have stakes in ING Vysya and we are always on the lookout for good financial institutions that do a good job working the deposit base to make sure that cost of funding is relatively low or competitive and putting that to work judiciously through credit cycle and there is always an appetite for those kinds of stocks whether they are fairly priced or not is another question, but we are continuously on the lookout.

Q: What is your view on the market per se on the whole and is there any case to increase your exposure to India even further?

A: Our exposure to India has been relatively stable this year to date. We continue to remain overweight on India - when you compare India within Asia excluding Japan benchmarks. I think we will be happy if we see more benign operating environment and clearer signs of bottoming out and recovery in the Indian market and that would encourage us to take a larger position within the Indian market, but valuations are not bargain basement cheap, most of the quality companies that we like are fairly priced. So, it has to be a mix of quality that these companies possess married to the valuations that we look at. India has always been on the radar screen, we do look at Indian market but we do hope that the operating environment will bottom out and will show a sustained level of growth before we make any greater investments into the Indian market.