Despite good outlook portrayed by all players for FY17, analysts have become selective in recommending IT stocks. Among the five companies, namely Infosys, TCS, Wipro, Cyient and Mindtree that have announced their results so far, most analysts recommend buying Infosys.

A few ‘buy’ calls

The mood towards Mindtree, Wipro and TCS is sombre. The most common recommendations by brokerages such as Motilal Oswal, Edelweiss Broking, Emkay Global Financial Services, Centrum Broking and Kotak mostly are: ‘hold’, ‘neutral’ and ‘reduce’.

Infosys beat FY16 revenue guidance and also issued a robust growth guidance of 11.5-13.5 per cent and 11.8-13.8 per cent in terms of constant currency and dollar terms, respectively, for FY17. Edelweiss expects Infosys’ margins to improve significantly as key metrics, such as attrition, utilisation and fixed price projects fall in place.

Some are also positive on Cyient and the stock has potential to provide an upside potential of over 20 per cent based on the average target price of ₹550. AnandRathi has upgraded rating on that stock to ‘buy’ due to better revenue growth outlook along with expanding margins in FY17.

Buyback helps Wipro

Stock price of Wipro, which reported disappointing results, will still be supported by the buyback offer price of ₹625 and the same provides an upside of 12 per cent given today’s closing price.

On TCS, Edelweiss said revenue and earnings underperformance will continue as low exit rate and falling margins will restrict the company’s earnings growth. Hence, the stock will not re-rate from here in the near term, it said.

Though Mindtree is poised to continue its stellar show in the next two financial years, valuation of 17 times for FY17 estimated earnings appear rich to analysts.

The average valuation of large- and mid-cap IT companies at an average 17 times and 15 times for FY17 estimated earnings, respectively, have widened slightly since January’s 16 times for both the categories.

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