TCS a strong contender for your portfolio

Yogesh Mehta, Founder, Yield Maximisers, picks out this three favourite IT stocks: Tech Mahindra, Infosys and TCS, in that order. In this interview, he says is a strong contender as a portfolio stock if the price corrects to Rs 2,800-2,900. Edited excepts.

Do you believe that the undertone of the market continues to remain quite negative and it will take time to recoup losses? Or do you believe that we are likely to bounce back the way it was evidenced in trade today?
The threat from increasing number of new cases has created panic in India, especially wherein globally there is no panic at all. Domestically, there is no further negative news flows as far as RBI or economy or earnings are concerned. So all these are positive factors. Second wave is the only external negative factor which fearfully worked across the traders’ community, leading to the landslide fall.

The earnings season will kick start in a strong manner as the fear of shortage of vaccines has subsided. It will again be a good opportunity for Indian investors or traders to buy stocks during correction which was not anticipated. When the market was high everybody was anticipating a correction and when the correction has come now everybody is looking at a further downside. Don’t look at Nifty or broader market numbers, look at individual stocks where the growth potential is immense and are available at a discount to their peak prices.

What is your reading of TCS’ quarterly numbers? Is this setting the precedence for a strong set of numbers within the entire IT basket too?
TCS numbers were as per the expectation, so no positive surprises. Whether it is a midcap or a largecap company, IT sector will deliver a strong set of numbers. In terms of dollar revenue, largecap companies will deliver between 4% to 6% revenue growth and in rupee currency terms it will be around 13.5% to 15.5% kind of revenue growth.

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TCS numbers are quite in line with expectations. Their deal wins are touching a new peak. Even the EBITDA margins are very much stable. So valuation is the only concern and that is why we saw some correction after the result. But a 3-4% correction from the peak level is not significant enough for investors. Overall, on the ROE, ROCE numbers and looking at FY22 and FY23 numbers, it is a strong contender as a portfolio stock. However, right now at current juncture it may remain at elevated levels but on correction it is a strong contender as a portfolio stock.

Which are your top picks in tech names?
I would look at Tech Mahindra first, then Infosys and then TCS. Rs 2,800-2,900 would be an ideal level if one has to get into TCS stock as an investment. Infosys numbers are on the cards tomorrow when the markets are closed, so let us see how it delivers and the major factor would be the buyback price and the quantum. This is the third buyback by the company.

I am betting on Tech Mahindra because the valuation is very much at a comfort level and the company is growing decently with 5G and telecom business both doing well. The prospects are very much brighter.



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