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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● We are assuming coverage of the Indian IT services sector with
an OVERWEIGHT stance. TCS and Mindtree are our top picks.
We also assume coverage of Infosys, HCLT, Hexaware with O
and Wipro with N. For reading the full report, please click here.
● Long-term prospects for offshore outsourcing, the high ROCE and
cash flows of the business and attractive near-term growth make
this sector attractive. Recent business momentum, hiring patterns
and order pipelines give confidence on near-term prospects. The
recent rupee depreciation, if it holds, presents upside to
estimates.
● The sector is the largest underweight position in institutional
portfolios, has underperformed YTD and seems oversold (based
on earnings revision). The stocks discount very modest long-term
revenue growth (just 10-13% for Infosys and TCS between FY15
and 21) even assuming significant margin contraction.
● Our base-case scenario is one of a sub-par US recovery rather
than a full-fledged recession. While a global recession would hurt
the sector in absolute terms, the sector had actually outperformed
the broader markets through the 2008 crisis
Combination of attractive financials and growth
This sector has high ROCE and cash flows. Datapoints such as
employee headcount additions and recent order wins suggest that
business momentum for these companies remains strong. Employee
additions have been consistently at 20%+ in recent quarters for the
larger companies, indicating a high level of visibility. Large client
addition is at the strongest level in three years – momentum of order
wins and client ramp-ups continues.
Supportive valuations
The sector has fallen 19% YTD and seems oversold relative to
earnings revisions. This is the largest underweight in institutional
portfolios. Even in the eventuality of a global recession, this sector
may be a safe place to hide in the Indian context since it outperformed
the broader markets even during the 2008 crisis.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● We are assuming coverage of the Indian IT services sector with
an OVERWEIGHT stance. TCS and Mindtree are our top picks.
We also assume coverage of Infosys, HCLT, Hexaware with O
and Wipro with N. For reading the full report, please click here.
● Long-term prospects for offshore outsourcing, the high ROCE and
cash flows of the business and attractive near-term growth make
this sector attractive. Recent business momentum, hiring patterns
and order pipelines give confidence on near-term prospects. The
recent rupee depreciation, if it holds, presents upside to
estimates.
● The sector is the largest underweight position in institutional
portfolios, has underperformed YTD and seems oversold (based
on earnings revision). The stocks discount very modest long-term
revenue growth (just 10-13% for Infosys and TCS between FY15
and 21) even assuming significant margin contraction.
● Our base-case scenario is one of a sub-par US recovery rather
than a full-fledged recession. While a global recession would hurt
the sector in absolute terms, the sector had actually outperformed
the broader markets through the 2008 crisis
Combination of attractive financials and growth
This sector has high ROCE and cash flows. Datapoints such as
employee headcount additions and recent order wins suggest that
business momentum for these companies remains strong. Employee
additions have been consistently at 20%+ in recent quarters for the
larger companies, indicating a high level of visibility. Large client
addition is at the strongest level in three years – momentum of order
wins and client ramp-ups continues.
Supportive valuations
The sector has fallen 19% YTD and seems oversold relative to
earnings revisions. This is the largest underweight in institutional
portfolios. Even in the eventuality of a global recession, this sector
may be a safe place to hide in the Indian context since it outperformed
the broader markets even during the 2008 crisis.
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