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  1. Is earnings recovery in IT sector underway? Here are top stock picks from Credit Suisse

Is earnings recovery in IT sector underway? Here are top stock picks from Credit Suisse

Amid earnings season, even as top IT heavyweights reported Q3 results in line or better than street expectations, global firm Credit Suisse says that a prolonged underperformance and under-ownership in the sector has led to re-rating of stocks.

By: | Updated: January 29, 2018 9:13 AM
Credit Suisse has increased the target price on the shares of Tech Mahindra to Rs 700 from Rs 550 earlier. (Image: Reuters)

Amid earnings season, even as top IT heavyweights reported Q3 results in line or better than street expectations, global firm Credit Suisse says that a prolonged underperformance and under-ownership in the sector has led to re-rating of stocks.  Many analysts, including Vikas Khemani of Edelweiss Securities say that the IT space looks fundamentally strong. “IT is also a natural hedge against weakness in emerging market currencies. The IT pack will remain in focus supported by three main factors – fundamental looks strong, it remains a natural hedge, and valuations,”  Vikas Khemani, President & CEO, Edelweiss Securities said in an interview with CNBC-TV18.

Credit Suisse says that it likes stocks with potential earnings recovery. Credit Suisse is bullish on Tech Mahindra and HCL Tech, and says that these stocks look attractive among large caps. The firm has increased the target price on the shares of Tech Mahindra to Rs 700 from Rs 550 earlier. Tech Mahindra shares closed at Rs 598.5 on NSE on Thursday.

Credit Suisse’s target price implies an upside of more than 17% from the current market prices. The quarter had seen strong earnings reported by HCL, in a quarter generally seen to be a weak quarter for IT impacted by season holidays in the United States. Sharing top picks from the midcap space, Credit Suisse said that Persistent Systems and Cyient look attractive among midcaps. Credit Suisse said that it has a neutral rating on TCS and Infosys.

Track live stock price: Tech MahindraPersistent Systems ; CyientHCL Tech

Notably, India’s second largest software service provider Infosys posted a 38% rise in net profit to Rs 5,129 crore in the October-December quarter, compared to Rs 3,708 crore in the corresponding quarter last year. The results were mainly buoyed by reversal of income tax expense provisions of Rs 1,432 crore on US IRS agreement. IT behemoth TCS reported a flat growth in earnings, as net profit came in at Rs 6,531 crore against Rs 6,778 crore in the comparable quarter last fiscal, beating street estimates.

Nilesh Shah of Envision Capital says that 2018 could be a comeback year for the Indian IT sector. “I probably think 2018 could be the comeback year for Indian IT. If we look at it over the last several years, some of the IT companies have been grappling with the demand environment, with basically pricing environment, with some of them grappling even with leadership issues and on top of that the currency. What we believe is that in 2018, a lot of these concerns or a lot of these headwinds would in a way go away and 2018 could be a reasonably solid year for Indian IT companies,” Nilesh Shah told in a recent interview to ET Now.

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