The buyback announcement by Wipro, feels Kawaljeet Saluja, executive director & head of research at Kotak Institutional Equities, is basically a tax-efficient cash-distribution approach adopted by the company, given the high tax incidence on dividend distribution.
In an interview to CNBC-TV18, Saluja agrees tightening of execution under the new chief executive at Wipro and opportunities to capture low hanging fruits in terms of business are positives which might aid growth in FY17. However, sustainable growth and convergence of growth rate with the industry will take time, he says citing reason for a reduced rating on the stock.
Saluja also shared his opinion on the upcoming Infosys and TCS results.
Constant currency revenue growth for Infosys during FY17 is expected at around 11-13 percent. For the quarter, it is estimated around 2.2 percent with marginal 20 basis points decline in earnings before interest and tax margin, he says.
For TCS, he expects 1.5 percent constant currency revenue growth rate for the quarter gone by with stable margin.
Below is the verbatim transcript of Kawaljeet Saluja's interview with Surabhi Upadhyay and Reema Tendulkar on CNBC-TV18.
Reema: Take us through what you have made of the buyback announcement by Wipro. Will it be 10 percent, will it be 25 percent. Give us your expectation?
A: I do not know whether it will be 10 percent or 25 percent. The way I look at the buyback announcement is - basically it's something which is an efficient cash distribution approach by Wipro given that there is a high tax incidence on dividend distribution, so to that extent any distribution done in the form of buyback will be more tax efficient.
Surabhi: What is your call on Wipro and give us a preview on Infosys expectations as well?
A: We like the fact that there is tightening of execution under the new CEO and there is also a possibility of capturing low hanging fruits that can help the growth rates of Wipro in 2017. However, sustainable growth and convergence of growth rate with the industry is something which will take a lot more time for Wipro and it needs a lot of aspects to fall in place to reach that level. That is something which we are not very comfortable with and as a result we have a reduced rating on the stock.
However, coming to Infosys what we expect is in terms of guidance its 11-13 percent constant currency revenue growth guidance for 2017 and for the quarter we expect marginal decline in EBIT margins which is 20 bps and 2.2 percent constant currency revenue growth rate.
Reema: We have Tata Consultancy Services (TCS) on Monday as well. The expectations are of about 1.5-2 percent dollar revenue growth. What do you think the company will deliver?
A: I think 1.5 percent constant currency revenue growth would be a kind of a reasonable expectation with TCS with stable margins.
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