Upbeat on IT; HCL top pick, Infy a sell: Societe Generale

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26 Aug, 2025 12:21

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Mukul Garg of Societe Generale in an interview to CNBC-TV18 analysed the various concerns facing IT sector and its probable impact on first quarter earnings.According to him for the industry as a whole the end markets are still improving with the US on an upswing and Europe still continuing with outsourcing.HCL Technologies remains a top pick for the house in the Indian IT space followed by Wipro, Tech Mahindra, says Garg. TCS is a hold at present and they have a sell on Infosys.Cognizant would come second in the pecking order after HCL Tech.

Below is the transcript of Mukul Garg’s interview with Ekta Batra & Anuj Singhal on CNBC-TV18.Anuj: We have profit warning from tech Mahindra. It hasn’t been good time for Infosys or Tata Consultancy Services (TCS). Is the sector due for further de-rating or you think most of it has been done?A: Most of the issues which has come up in the last quarter or Tech Mahindra issue which came out this quarter is more to do with either quarterly issues or issues with the specific sector. For example in Q4 you had the sector as a whole was impacted because of currency, because of what happened on the energy side. On Tech Mahindra it was more specific because of their exposure to telecom sector.If you look at what is happening in the industry as a whole then their end markets are now improving and that was very well demonstrated by what Accenture did last week. They reported really strong growth; they reported numbers specifically in the consulting segment which is a precursor of what will happen in the IT service outsourcing pack. So, US is definitely on an upswing. Europe is still doing lot of outsourcing off-shoring so we think that overall sector is positive.

Ekta: Barring Q1 which is most likely going to be a disappointment for Tech Mahindra what is the entire FY16 looking like for Tech Mahindra?A: For Tech Mahindra because Q1 will be a disappointment the impact will be there on rest of the quarters. So 2016 will not be as strong as we have been anticipating for Tech Mahindra on organic basis. The focus now will be more on what is going to happen in FY17 when the integration of Lightbridge Communications Corporation (LCC) will be complete and when they will start reaping the benefits of the combined company. So, the focus is more on the longer term story and on when they can capture the greater share of the telecom spending. Anuj: TCS or Infosys which offers better risk reward right now?A: TCS definitely offers a better risk reward. We have a sell on Infosys. We think Infosys is going to struggle in the near term to match expectations of the investors. The company still has a long way to go in terms of investments into both delivery side and demand side; you have digital, you have automation and artificial intelligence (AI) the company still has some still some catch up to do. Whereas TCS has been the leading spender in these areas so Infosys should see impact on the profitability because of that. Hence we are slightly more positive on TCS.Ekta: It didn’t worry you that TCS has cancelled its mid quarter analyst meet?A: Not exactly, this is the start of the year so if they had to do it they had to do it at this time. If they had done it in the middle of any other quarter, it would be a different thing. It might be something which they have done; they were the only one doing it. So it might not be the specific issue with the company. Anuj: For TCS from here on what kind of price target would you have?A: TCS we have a hold we think the stocks is fairly valued. Our target price is not very different from where the stock is today. It is the best placed company in the sector. It has the best growth rate but so is the multiple. Ekta: Which according to you is the IT Company which is best placed to capture the digital revolution or the change that is happening right now and how?A: Again, we would say it is TCS. TCS has the best growth rate in this sector for last many years. That gave them lot of room to go out and spend without actually impacting the profitability and to see what is happening in different regions of the world. So we think that TCS is among the Indian IT services pack is the best placed company on the digital side.You also have efforts which are being done by other companies like Wipro and more recently Infosys. It is a race which everyone is entering now. Difficult to comment on who will be the eventual winner. It depends on how much you are going to spend on it.Anuj: Wipro went through a period of big underperformance and then of course we saw quite a bit of rally in Wipro. From here on what kind of risk reward is there in Wipro?A: In Wipro the issue is that the company has had a very high exposure on energy side. The company also is among the largest player when it comes to telecom among the Indian IT peers. So, the combined share of telecom plus energy was what dragged the company down last quarter. If you exclude that if you look at the other spaces and if you look at the deals which they have been wining we think that the company had been wining more than its fair share. That is something which will start reflecting after the second quarter when the impact of energy will go out.Ekta: What is your sense in terms of HCL Tech going forward on an earnings perspective and as compared to the rest of pack?A: They did decently well last quarter. The impact which happened was primarily on the margin side where the company actually went out and invested and then the stock reacted but it has recovered most of it. HCL Tech is our top pick in Indian IT services pack simply because the company has been been able to pick out sectors where they normally don’t face that much competition. So earlier the most of the growth was coming out from infrastructure outsourcing from the IMS services now that segment continue to remain decently strong. The company over last couple of quarters has started investing a lot of engineering and research and development (R&D) outsourcing. That is a big pie which is out there which everyone is trying to grab but there is not too much which is coming to India till now. Anuj: Your 5 Nifty companies and Cognizant what would be the pecking order for you? A: If you include Cognizant, I would probably put Cognizant right after HCL Tech, then we have Wipro and Tech Mahindra but both of them will have a bit of an issue because the near term will remain tough for them. We have a hold on TCS and we think that Infosys is overpriced so we are a seller at that time.Ekta: It seems as though you are on cusp of an upgrade for TCS the way you have been talking about it?A: The problem with TCS is that given the valuation of the company even a slight amount of miss impact the share price a lot. So the stock remains of the most highly valued in the sector and it is difficult to be buyer at that time.