IIFL Institutional’s IT analyst Sandeep Muthangi believes the concern raised by Narayana Murthy regarding revenue guidance of Infosys for FY14 is more of a company specific and is unlikely to affect the IT sector as a whole. He recommends keeping a wait-and-watch approach for the IT bellwether and analyse the severity of the problem faced by the company.
Murthy on Wednesday warned of a tough start to FY15 due to weak spending by major clients and said that it expects revenue for FY14 to come in at the lower end of its forecast of about 11.5-12 percent.
Muthangi is bullish on IT sector given the huge demand environment and prefers Tech Mahindra and HCL Technologies over Infosys given their cheaper valuations and a fairly consistent performance.
Below Sandeep Muthangi’s interview with Reema Tendulkar and Latha Venkatesh on CNBC-TV18
Reema: Eight percent gone in early trade, does it reflects a buying opportunity or do you think the stock could trend lower in the next few days?
A: Management has indicated about a very gloomy quarter. If the concern was only specific to one quarter then obviously this is a good time to buy but the problem with the commentary of the management is that a lot of things seem to have more medium-term or structural impact like some of the worries about sporadic RAM down or continued slowdown in the vertical like high tech are concerns.
The other problem is that most other IT companies are still commenting about a stable to improving demand environment and so, this is a company specific problem and not a quarter specific problem so one has to really wait and see what the results commentary is and how severe the problem will be. One should have a wait and watch approach and at the same time there are other companies that are cheaper, I would still prefer Tech Mahindra or HCL Technologies given the cheaper valuations and a fairly consistent performance.
Latha: What about the big IT stock actions, it has been a bit of collateral damage on Tata Consultancy Services (TCS), WIPRO, HCL Technologies, all of them down over a percent?
A: Obviously Infosys is the second largest IT company listed in India, it’s a bellwether. So, if Infosys is having a problem then it’s only fair to have a rub-off effect on the other IT companies. We have had a terrific year for IT companies, most of the stocks were up anywhere between 70-100 percent over the past year so after such a sharp run up though the valuations are not expensive, the growth estimates are fairly healthy so such a commentary from Infosys will make one reaching about, there can be any positive surprises going forward.
Latha: Are you re-thinking or are these buy times for you for any of these?
A: I am still pretty positive on IT given the demand environment that’s why I would still prefer a company that has been performing consistently. I don’t see a reason to be worried about Tech Mahindra or HCL Tech or most of the other IT companies.
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