Shares of IT majors TCS, HCL Technologies, and Infosys have been majorly affected by the economic and political turbulences across the globe. The ongoing Russia-Ukraine war, economic slowdown, highly volatile global markets and bleak earnings outlook have dampened sentiment around the IT sector stocks.
The shares of the three IT majors, which cater to clients worldwide, have fallen up to 22 per cent in the last one year. While Infosys is down 15.33 per cent, stock of HCL Tech has plunged 21.72 per cent during the period. Shares of TCS have lost 18.34 per cent in a year.
On a year-to-date basis, the three IT stocks have lost up to 30 per cent during the period. While Infosys stock is down 23.54 per cent, HCL Tech shares have declined 29.91 per cent this year. The leading IT major by market cap TCS has lost 16.59 per cent during the period.
The IT sector indices too have felt the pressure of the ongoing economic slowdown. The BSE IT index has declined 25.66 per cent this year and fallen 18.43 per cent in the last one year. Similarly, the Nifty IT index is down 29 per cent in 2022 and lost 21 per cent in the last one year.
The Q1 earnings performance of the leading Indian IT majors has not been encouraging which will likely to affect their margin outlook in the near future.
"The EBIT margins for IT companies shrank further in Q1FY23 and are now below pre-covid levels for tier-1 companies in the sector. The companies had reduced their margin guidance at the start of FY23, but we believe continued pressure due to elevated attrition levels is likely to result in margins dropping near the lower end of guidance," a report by ICICI Securities said.
Here's a look at what analysts said about the outlook of the three stocks and which one among them can prove to be a better pick in the current market scenario.
Pavitraa Shetty, Co-founder & Trainer, Tips2Trades
"A strong sell off in technology stocks globally has led to a sharp rerating even in the Indian IT sector including Infosys. Rs 1,445 remains a strong support. Infosys needs to close above Rs 1,520 on daily basis to move considerably higher to Rs 1,630-1,700 in the near term. Similar to the large cap IT stocks, HCL Technologies has seen severe selling in recent times despite robust fundamentals mainly due to globally weaker sentiment in the IT sector. Rs 900 remains a strong support. A daily close above Rs 960 is needed to reclaim higher targets of Rs 1,025- Rs 1,150 in the coming months."
Chirag Kachhadiya, Lead IT Analyst , Ashika Institutional Equities
"In the last five years, Infosys outperformed TCS in YoY growth run rate. Interestingly this time, both companies have given double-digit revenue growth guidance for FY23. The management raised FY23 constant currency revenue growth guidance to 14-16 per cent against the earlier of 13-15 per cent. It retained EBIT margin guidance at 21 per cent -23 per cent, but expects to achieve the lower end of guidance owing to cost pressure. We believe revenue growth is not a challenge but margin pressure is near term concern for the entire IT sector. Hence it's better to stay with a sector leader in such an uncertain time with favorable risk-reward and valuation comfort. So we prefer Infosys."
Ketan Sonalkar, Head of Research, Univest
"At this time, among TCS, HCL Tech, and Infosys, Infosys seems to be a better investment proposition. Going by the results of Q1FY23, Infosys' YoY revenue growth was the highest among these three at 23.57 per cent.
Q1FY23 also saw healthy deal wins with 19 new contracts, with the highest deal value being $1.69 billion. Infosys has also delivered the highest returns among the top three IT companies over the past three and five years, making it a more consistent performer for investors. Given the consistent performance, Infosys has the potential to outperform peers and can head to its previous high at Rs 1900 in the medium term."
Ravi Singh, vice President and head of Research, Share India
"The IT sector is on promising outlook in terms of attractive valuations and robust growth margins. The long term outlook is well supported by a depreciating rupee as the sector makes most of the revenues from the overseas market. TCS, HCL and Infosys are good portfolio stocks and have potential to deliver high RoE. However, Infosys stock is currently trading around value buying levels and may deliver better returns in the long term as compared to others. The long-term target for Infosys stands around Rs 1,540 levels."
Manoj Dalmia, founder and director, Proficient Equities
"All three shares have been under selling pressure recently. TCS might undergo selling pressure looking at the structure and might enter a consolidation price after this. Downside target of Rs 2970 HCL has a slightly better structure, but it might undergo a sideways volatile phase. It is forming a higher high structure and we can see an upside till Rs 975 levels. Infosys looks weak as it is below the trend line. We can see some downside till Rs 1,360 levels."
Copyright©2022 Living Media India Limited. For reprint rights: Syndications Today