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India Equity Research Reports, IPO and Stock News
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● We go 270 bp overweight on the IT services sector with TCS and
Infosys, funding it by reducing our Overweight on
staples/discretionary by selling some of ITC and Bajaj Auto.
● With risk aversion at levels similar to the ‘Lehman moment’ (Fig.
1), we continue to believe it is time to selectively add risk to the
portfolio. However, given the macro uncertainty, we also believe it
is prudent to limit the amount of risk.
● IT services stocks have underperformed significantly since
November 2010 and are now available at a significant 17%
discount to long-term multiples (Fig. 2). During this period a
portfolio of ‘safe stocks’ (Stocks of safety, 8 August 2011) has
outperformed the Nifty by more than 30% (Fig. 3).
● In his note today, CS analyst Anantha Narayan argues: (1) current
valuations discount very modest long-term revenue growth even
after assuming a 750 bp margin contraction (10-12% FY15-21E
for both TCS and Infy), (2) 15% revenue growth is easily
sustainable given low penetration of offshore services in global IT,
and (3) big IT companies can maintain 20%-plus EBIT margins.
we continue to believe it is time to selectively add risk to the portfolio
(Time for some selective risk-taking, 5 September 2011). However,
given the macro uncertainty, we also believe it is prudent to limit the
amount of risk. We therefore go 270 bp overweight on the IT services
sector with TCS and Infosys, funding it by reducing our Overweight on
staples by selling some of ITC and Bajaj Auto.
The India technology sector has underperformed significantly since
November 2010 and is now available at a significant 17% discount to
its long-term multiples (Fig. 2). During this period a portfolio of ‘safe
stocks’ (Stocks of safety, 8 August 2011) has outperformed the Nifty
by more than 30% (Fig. 3).
In his note today, CS analyst Anantha Narayan sets the buy
argument: (1) current valuations discount a very modest long-term
revenue growth even after assuming a 750 bp margin contraction (10-
12% FY15-21E for both TCS and Infy), (2) 15% revenue growth is
easily sustainable given low penetration of offshore services in global
IT, and (3) the big IT companies can maintain 20%-plus EBIT margins.
He therefore believes under a base-case scenario of a sub-par US
economy, IT services stocks provide upside, and even if a recession
does unfold, the underperformance may not be material.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● We go 270 bp overweight on the IT services sector with TCS and
Infosys, funding it by reducing our Overweight on
staples/discretionary by selling some of ITC and Bajaj Auto.
● With risk aversion at levels similar to the ‘Lehman moment’ (Fig.
1), we continue to believe it is time to selectively add risk to the
portfolio. However, given the macro uncertainty, we also believe it
is prudent to limit the amount of risk.
● IT services stocks have underperformed significantly since
November 2010 and are now available at a significant 17%
discount to long-term multiples (Fig. 2). During this period a
portfolio of ‘safe stocks’ (Stocks of safety, 8 August 2011) has
outperformed the Nifty by more than 30% (Fig. 3).
● In his note today, CS analyst Anantha Narayan argues: (1) current
valuations discount very modest long-term revenue growth even
after assuming a 750 bp margin contraction (10-12% FY15-21E
for both TCS and Infy), (2) 15% revenue growth is easily
sustainable given low penetration of offshore services in global IT,
and (3) big IT companies can maintain 20%-plus EBIT margins.
we continue to believe it is time to selectively add risk to the portfolio
(Time for some selective risk-taking, 5 September 2011). However,
given the macro uncertainty, we also believe it is prudent to limit the
amount of risk. We therefore go 270 bp overweight on the IT services
sector with TCS and Infosys, funding it by reducing our Overweight on
staples by selling some of ITC and Bajaj Auto.
The India technology sector has underperformed significantly since
November 2010 and is now available at a significant 17% discount to
its long-term multiples (Fig. 2). During this period a portfolio of ‘safe
stocks’ (Stocks of safety, 8 August 2011) has outperformed the Nifty
by more than 30% (Fig. 3).
In his note today, CS analyst Anantha Narayan sets the buy
argument: (1) current valuations discount a very modest long-term
revenue growth even after assuming a 750 bp margin contraction (10-
12% FY15-21E for both TCS and Infy), (2) 15% revenue growth is
easily sustainable given low penetration of offshore services in global
IT, and (3) the big IT companies can maintain 20%-plus EBIT margins.
He therefore believes under a base-case scenario of a sub-par US
economy, IT services stocks provide upside, and even if a recession
does unfold, the underperformance may not be material.
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