On similar lines, Shashi Bhusan of IDFC Securities, in conversation with CNBC-TV18, said that the downgrade in the overall growth expectation in the IT sector has been in the range of 3 to 5 percent for most of the companies.
Vishal Sikka, Infosys chief, in an interview with CNBC-TV-18 had said that the Brexit and the Trump effect is overstated.
On similar lines, Shashi Bhusan, Analyst-IT Services, IDFC Securities, in conversation with CNBC-TV18, said that the downgrade in the overall growth expectation in the IT sector has been in the range of 3 to 5 percent for most of the companies.
He said the growth expectation is not more than 3 to 5 percent. There were multiple deratings as well which were linked to uncertainty that Brexit and US elections had added.
He also said the rupee did not give any support to the sector. All these factors resulted in the downward revision of the earnings.
Bhushan said he prefers Infosys and Tech Mahindra, both on improved revenue outlook.
Below is the transcript of Shashi Bhusan’s interview to Sonia Shenoy and Anuj Singhal on CNBC-TV18.
Sonia: We had an interaction with Vishal Sikka a couple of days ago, but he believes that the Brexit impact on IT and the Trump impact on IT is overstated. Would you concur with that view and do you think that the worst is already priced into these stocks?
A: If you look at the downgrade in the overall growth expectation for the sector as a whole, that might have been around the range of 3-5 percent for most of the companies. We started the year with 10-12 percent and that is what NASSCOM guided for and now we are somewhere around 8-10 percent. That is what NASSCOM guided for yesterday. So, not more than 3-5 percent growth expectation. Earnings cut could have been in the range of 5-7 percent or maybe in some cases 10 percent. But the stock corrected by nearly 25-30 percent in few cases, even higher. So, there is multiple derating that also happened. Obviously, it was linked to little bit of uncertainty that Brexit has added and then US election and Trump coming in as a most recent, we do not know the impact of that.
There was some cross-currency headwind as well. That has brought down the growth expectation for the sector as a whole. And then, the rupee is not giving any support for the sector. So, all these factors combined together actually resulted in downward revision to the earnings and then multiples getting reset to the lower level. But most of these things are already set into the expectations. We have seen almost 4-5 quarters of soft spending from the clients and where we are today, possibly we can look up to increase or maybe flattish with a little more off-shoring trend for the Indian IT in the next calendar year.
Anuj: What is your pecking order? We have seen Infosys at trough valuation. Tata Consultancy Services (TCS) has outperformed a bit. How do you approach the big names?
A: Our pecking order for the Tier-I, we prefer Infosys and Tech Mahindra, both on account of improving revenue outlook. If you look at the deal win for Infosys that has been pretty strong. The only thing which has been ailing them is perhaps, a slow ramp up. There was one ramp down of Royal Bank of Scotland (RBS) which was totally unexpected that started last quarter. Beyond that, their deal win is good enough to give them strong revenue uptick over the next few quarters. We are not talking about Q3, but maybe in the calendar 2017.
We are seeing similar trend for Tech Mahindra as well, the telecom services company has again started looking capital expenditure (Capex)/operational expenditure (Opex) kind of investment. Most of the merger and acquisitions (M&A) is already in the expectation or has already been captured in the slower IT spend. So, both these companies look to be on a slightly stronger footing compared to their peers in terms of a revenue growth.The Great Diwali Discount!
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First Published on Nov 17, 2016 10:51 am