No change in Infy nos post warnings; like HCL Tech: Equirus

Pankaj Sharma, Head-Equities of Equirus Securities talking on the margin warnings by Infosys for the third quarter said, the house hasn’t changed their stance on the stock because the statements seem inconsistence – on one hand they are saying margins will be under pressure but on other hand, they maintain their full year guidance.He also clarified that the issue of H-1B visa always arises whenever there are elections in US.Stock specific, he is bullish on HCL Technologies from the largecap space and KPIT Technologies, Persistent Systems, eClerx Services from the midcap sapce.Below is the verbatim transcript of Pankaj Sharma’s interview with Nigel D’Souza & Reema Tendulkar on CNBC-TV18.Nigel: Infosys has lost closed to around 9 percent this month itself. It had pulled back this morning but what is your Infosys margin estimate and have you tweaked it post the negative commentary that we got? A: We have not really updated our numbers after the commentary because there is something very inconsistent in the commentary because while there was negative comment on the business environment for Q3 the overall guidance for the full year has been unchanged. So, I really don’t know how it will pan out. I believe that it requires at least a month’s time before we have some final comment or maybe we have to wait till even the third quarter numbers are out. Because I find it slightly inconsistent that while you are saying that the third quarter is not looking that great because of issue on the client’s side but you are maintaining full year guidance. So, there is an issue with that. We haven’t cut our numbers yet. We have not really updated them post the recent comments and we are maintaining our guidance which we had before the comments came in.Reema: The other problem which is ailing the IT industry is this new visa reform bill which is proposed in the US. How big or how much of a worry is it going to be? Have you estimated what the potential hit could be especially on the Indian IT companies margins?A: I think that this is something which is a recurring phenomenon. If you look at even in last 10-12 years whenever there are elections in US this issue comes up again and again, I think it is more political. I really don’t think any material impact from this issue in near-term. Unless something drastically changes in the prevailing laws so this news flow will continue. The commentary would be negative and it would be in the news for some more time but over likely I don’t think any material impact because if you looked at the lobby of the corporations which uses IT services for them it really is very important to continue with the system which they have today. Because if they are clamping down on H-1B visa in a big way it would be a massive problem for these corporations and if not more than equally strong. I really don’t think any adverse impact that would come in from this issue. It is more of a media hype because of elections there. As far as impact is concerned I think it is more relevant for some of the larger companies because if you look at whenever there is an issue which is more political of course you would target first the companies which are perceived to be snatching away the jobs from US citizens. So, you would see that impact could be more on Tata Consultancy Services (TCS), Infosys. Some of the smaller companies probably would be flying below the radar and I really don’t think that much impact on them. However, overall also I am not very negative on this issue as much. Nigel: Give us top two buys from the IT space and do you prefer largecaps or are you looking at the midcap space? A: If you look at in the largecap space we are having a very positive view on HCL Tech. We think that this is the company which has really been impacted severely because of the issues which they highlighted towards the end of September when they talked about a client specific issue and the negative impact. I think it has been kind of overreaction. Of course the stock has started to factor in that. However, overall if you look at in last one month or so HCL Tech is something which we are liking. Also if you look at some at the largecaps there are issues with Tata Consultancy Services (TCS) and Infosys. We think that TCS and Infosys both would continue to struggle as far as the topline growth is concerned. Wipro there are issues which are more structural in nature. It would probably take a bit more time for them to be back on track, but in the largecap space we only have liking for HCL Tech. We are more constructive and positive on the midcap space in IT because we think that one – if you look at the merger and acquisition (M&A) action which would probably be more possibly in this space. Secondly in terms of the identification of niche areas many of these companies are operating in they have definitely the potential to do better than largecaps. So, we have very strong preference for KPIT Technologies. We like that stock a lot. There are also some more names which we are positive on so let us say if we look at eClerx, we also have liking for NIIT and Persistent Systems so overall in terms of the preference we like midcaps more than largecaps. Among the midcaps we have KPIT, eClerx, Persistent and in the largecap we like HCL Tech the most. Reema: Any target prices or the kind of upside you see in these counters like KPIT, eClerx, Persistent Systems? A: KPIT’s case we have Rs 160, the target price. Also if you look at the eClerx is at Rs 21.30 and Hexaware Technologies we have a trade rating though, we have Rs 257 target price. On the other names like Persistent Systems we have Rs 779 as our target price. We are not that positive on Tech Mahindra which is a trade rating, a Rs 584 target prices on that name.