Nuvama has upgraded Mphasis to 'Buy' citing a possible recovery in the US mortgage business and anticipation of better a macroeconomic environment as US Fed moves closer to a rate cut.
"We see Mphasis at an inflection point – where the factors that led to its underperformance over the last two years - are now likely to reverse, leading to outperformance," the Nuvama note said.
Nuvama added that Mphasis' 25 percent rally in the last three months has been fuelled by expectations of US interest rate cuts and signs of a recovery in US-BFS (Banking, Financial Services) space.
Nuvama's target price of Rs 3,500 for Mphasis indicates an upside of over 16 percent from Wednesday's closing level.
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After two years of a subdued performance - marked by 7.8 percent growth in FY23 and 6.3 percent decline in topline in FY24 - Mphasis is poised for a rebound, believes Nuvama. The high interest rate environment had dampened the company's BFS and mortgage segments, it said. As the Fed signals potential interest rate cuts, Mphasis is expected to experience a resurgence in its mortgage business, which has a strong inverse correlation with US rates, Nuvama added.
Nitin Rakesh, CEO of Mphasis told Nuvama that Mphasis is taking giant strides to capture early-mover advantage in the AI space. Its client-focused strategy has consistently allowed Mphasis to mine its clientele deeper, while diversifying the revenue base, Rakesh added.
Mphasis CEO Rakesh also expressed excitement about platforms - NeoZeta and NeoCrux - designed to modernise legacy codes and enhance the software development lifecycle.
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Given the anticipated improvements in the US macroeconomic environment, Mphasis's strategic positioning in AI and a recovering BFS segment, analysts see the company as an ideal proxy for playing the US interest rate cycle.
On August 23, all eyes will be on Fed Chair Jerome Powell's speech at the Jackson Hole Symposium, which is expected to provide insights into the US Fed's likely rate trajectory. Analysts are anticipating a 0.25 percent rate cut in September with some are speculating a larger 0.50 percent cut. Recent remarks by Fed officials suggest a growing inclination towards rate cuts due to concerns about the US economy and job market.
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