Brexit's near-term impact on IT cos only 1%: Systematix

Information technology (IT) is one of those industries most impacted due to currency depreciation triggered by Brexit, said Rahul Jain, Vice President at Systematix Shares and Stocks. Speaking to CNBC-TV18, Jain said while a significant impact following the event may come in another 12-24 months, near-term impact on these IT companies will only be around 1 percent. Below is the transcript of Rahul Jain’s interview with Sonia Shenoy and Anuj Singhal on CNBC-TV18.Sonia: Tell us what the impact could be on some of these companies because of the depreciation that we have seen in the pound.A: To begin with, the impact would be restricted to the currency movement, because that is what we see as of now. As far as that process is concerned, India is more on the process and realignment of the things wherein the duplication of the work and all would actually lead to more and more business for us. So, that is the benefit as far as the Indian guys concerned. And more recent advantageous situation would be the companies who have the delivery centres in the eastern European market which is a very small component for the Indian vendors as of now.Anuj: So, stock wise, Tata Consultancy Services (TCS) is clearly looking like the most impacted in the largecap space. Infosys also down about 1.5 percent. What kind of impact do you think these stocks will have? At what point would you say that this pound depreciation has been factored in?A: If you see the hedging strategy of the companies are now very largely aligned to the extent of six months, net exposure perspective. So, the impact is more on the larger of the longer term horizon I would say. And for six months and all, it gets captured from a hedging perspective. TCS, the impact sometimes is more because they rely on a range option cases, where if they move beyond that option range, the impact are open. Otherwise, it is more from a 12-24 month pound reaction is what matters on the earnings. Near-term it would be maximum 1-1.5 percent in my opinion.Sonia: It is only 1-1.5 percent impact in the near-term, that is hardly anything. And also, for TCS, the stock has given great returns, from February it has gone from Rs 2,100 all the way to Rs 2,650. So, maybe there is some profit taking as well. Do you think that TCS is a buy at Rs 2,500 because as you mentioned, the impact on earnings is hardly anything?A: I am definitely buy on IT sector range. And if you say this is the only sector where the cash flow certainties are very high and earnings growth, though has come off from longer 20 percent to 12-15 percent level, but there is enough certainty, strong cash flow, strong operating matrix which will continue to command some premium.