Don't see big-ticket move by Infosys for a year: Centrum

Below is the transcript of Ravi Menon’s interview with CNBC-TV18’s Ekta Batra and Anuj Singhal.

Anuj: I was reading an interesting report that the cross currency head winds may hurt IT companies this quarter. Would you agree with that?

A: There has been appreciation of the US dollar against the euro and the pound, but it is not going to hurt the margins. A lot of the crossover are denominated in local currencies. So, I don’t really see much of an effect on margins. It is just a translation into the dollar but there would be some impact of that, but that is it. In Japan the strengthening of the dollar against Yen is also going to have some impact, but other than that I don’t see too much in cross currency.

Ekta: One stock which is in focus has been Mastek in the past couple of minutes. We heard news about the demerger of its insurance services and products business. Though you might not have official coverage on this stock would you have any thoughts with regards to that?

A: It is a good move separating this two. Maybe that might encourage larger eco system of service providers to cater to their products if that is the strategy that is a good move and the services side itself if they are going to be a domain specific player in insurance. There could be room for a niche play in that space.

Ekta: There have been a couple of reports where brokerages or analysts have met with the Infosys management. Do you have any thoughts in terms of what their Q2 numbers would possibly look like prima facie since we are closing towards the end of September already and besides that any thoughts on the cash utilisation timeline?A: The cash utilisation they would prefer to wait. We might see some small acquisitions but I don’t really see them doing anything big ticket at least for the next one year. It will take some time for the new CEO to settle down before he takes anything that might be considered, let’s say, really large ticket or transformative acquisition. It will take some time to understand the organisation and how to digest that.So I would not expect to see any near term utilisation of cash. Maybe a slightly increased dividend payout that would be in line with what Oracle Financial Services has done recently, paying out a large amount as a onetime dividend but Oracle hadn’t paid out any dividends till date. So that is an exception. But Tata Consultancy Services (TCS) gave an extraordinary dividend this time, much higher than usual for 10th anniversary.So it is things like that are driving slightly higher dividend yields. So there would be pressure to do that.Anuj: What is your pecking order among the large cap IT names, what stocks do you like and if you could give us the order?A: HCL Tech and Wipro, those are the only two names that offer considerable upside from here. We also like Infosys but a large part of upside from Mr Sikka coming in has been factored in and now it really is up to continued execution. We should see them win a few large deals and also see them improving traction in Europe. Those will be the next key triggers for further up move in that stock.TCS, we like the execution but the valuations are really expensive. Right now it is close to 50 percent discount in P/E terms between TCS and HCL Tech. That is unwarranted and it is even greater than that for Wipro.Growth differential between TCS and HCL Tech is hardly going to be there. So this kind of P/E discount is unwarranted. Return metrics too fairly close, so I don’t think this can sustain. We are looking at rerating of HCL Tech from here. So that is my top pick, then followed by Wipro where again everybody is expecting that they will continue to underperform but I don’t agree with that assessment. They have turned some strategic deals in the recent past. So we should see improved traction over FY16.