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After the initial slump on news of Donald Trump winning the US Presidential polls and its probable negative implications, the Nifty IT index has staged a smart recovery. It has, in fact, outperformed the benchmark Nifty 50 index with a huge margin. But the November 8 announcement of demonetisation has slowed things down; the Nifty IT index has gained only a marginal 0.5 per cent since then, while the Nifty 50 has tumbled a sharp 3.8 per cent.
Protectionist viewsMarket experts are no more too perturbed by Trump’s protectionist views. They feel his policies would have only limited impact on the business of India’s large IT companies, since the US accounts for only around 30 per cent of their total revenues. Further, these experts point out that the IT sector is among the few to be little impacted by demonetisation, which, currently, is a bigger worry for the Indian equity market. As a result, IT stocks have attracted buying interest.
“The large IT company stocks are not available at throwaway prices but they are at decent levels, adequately discounting the nervousness. Maximum impact of Trump’s harsh policies (most unlikely) would be only 3-5 per cent on total revenues of the companies,” said Sharad Avasthi, Head - Research at Spa Securities.
Edelweiss Securities has reiterated its ‘buy’ recommendation on Infosys, HCL Technologies and Tech Mahindra. “We understand that most Indian IT players have significantly increased local hiring and the percentage of H1B employees is falling sharply. Most Indian IT companies are paying a premium to recommended minimum wages and also wage levels are not different than those of their MNC counterparts, such as Accenture, IBM, etc,” it said.
Underweight, but...Gopal Agarwal, CIO at Mirae AMC remains underweight on the sector but said on correction he would buy stocks that offer higher free cash flow yield of over 4 per cent. He calculates free cash flow yield as free cash flow (operating profit + depreciation + net change in working capital) divided by enterprise value (market cap + debt minus cash). Infosys, TCS and HCL Tech look attractive below ₹950, ₹2,100 and ₹725, respectively, said the head of research at a broking firm. Among the three, Infosys is the top pick.
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