Not much downside in Wipro stock; buy on TCS: IIFL
"There could be an initial knee-jerk reaction in the market but the stock will stabilise 2 to 3% down from current levels. I do not see much of a downside."
Updated:
In a chat with ET Now, Aniruddha Mehta, Research Analyst (India Private Clients) at IIFL, shares his views on the Wipro stock after the company announced its Q1 results and his outlook for the IT pack.
ET Now: Disappointment on the bottomline, which is below estimates, and on the guidance provided as well?
Aniruddha Mehta: Yes. There will be a negative reaction on the stock, not primarily because of the Q1 numbers - revenues as well as PAT seem to be in line with expectations - but the guidance that the company has given was much lower than expected, guidance at -0.65 to 1.4 per cent growth for the next quarter was lower than our expectations of 3 per cent.
Considering this guidance, the asking rate for the Q3 to Q4 would be pretty high to achieve, the growth that we are building into the numbers. So, considering this guidance, we expect Wipro to do in line with what Infosys would for the full year FY13.
ET Now: Do you see a significant derating for the stock? How much more downside do you see from the current levels?
Aniruddha Mehta: Right, so the stock has corrected by about 12 per cent in the last 12 months. Many negatives have already been factored in, according to me, into this stock. There could be an initial knee-jerk reaction in the market but the stock will stabilise 2 to 3 per cent down from the current levels. I do not see much of a downside from the current levels.
ET Now: Broadly, what is the call on the rest of the IT pack? Do you think these issues are specific to Infy and Wipro alone and that the others will be able to withstand? Do you have a 'buy' rating essentially on any of the IT stocks at current valuations?
Aniruddha Mehta: We are doing a selective bottom-up strategy for this particular sector. We like HCL Tech for the revenue visibility and the deal wins that it has. Also TCS with the strong deal wins and consistent execution. So we have a positive stance on both TCS and HCL Tech, and we have a 'buy' on HCL Tech currently. There would be a divergence in performance, and HCL Tech and TCS would win in this particular scenario.
ET Now: Disappointment on the bottomline, which is below estimates, and on the guidance provided as well?
Aniruddha Mehta: Yes. There will be a negative reaction on the stock, not primarily because of the Q1 numbers - revenues as well as PAT seem to be in line with expectations - but the guidance that the company has given was much lower than expected, guidance at -0.65 to 1.4 per cent growth for the next quarter was lower than our expectations of 3 per cent.
Considering this guidance, the asking rate for the Q3 to Q4 would be pretty high to achieve, the growth that we are building into the numbers. So, considering this guidance, we expect Wipro to do in line with what Infosys would for the full year FY13.
ET Now: Do you see a significant derating for the stock? How much more downside do you see from the current levels?
Aniruddha Mehta: Right, so the stock has corrected by about 12 per cent in the last 12 months. Many negatives have already been factored in, according to me, into this stock. There could be an initial knee-jerk reaction in the market but the stock will stabilise 2 to 3 per cent down from the current levels. I do not see much of a downside from the current levels.
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ET Now: Broadly, what is the call on the rest of the IT pack? Do you think these issues are specific to Infy and Wipro alone and that the others will be able to withstand? Do you have a 'buy' rating essentially on any of the IT stocks at current valuations?
Aniruddha Mehta: We are doing a selective bottom-up strategy for this particular sector. We like HCL Tech for the revenue visibility and the deal wins that it has. Also TCS with the strong deal wins and consistent execution. So we have a positive stance on both TCS and HCL Tech, and we have a 'buy' on HCL Tech currently. There would be a divergence in performance, and HCL Tech and TCS would win in this particular scenario.
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