Infosys, HCL Tech and Zansar are three IT stocks on which Hemang Jani, Equity Strategist & Senior Group VP, MOFSL, is bullish on. Edited excerpts from his interview with ET Now:
IT stocks always do well when there is an uncertainty. But this time around, it is different. What is your strategy?
We were a little surprised by the intensity of drop in certain midcap and largecap IT stocks like HCL Tech and Wipro. They had corrected a little more than what we would have expected them to. Even in the US, top-notch IT companies like Amazon, Google, etc were holding out or showing a lot of resilience, but the broader market was in excessive frenzy or euphoria. Those are the names which are going through a much larger degree of correction and a similar case was even seen in India where midcap IT names had seen a correction of 25-30%. May be, at the largecap level, it was a little less about 5-10%.
So we think that the entire business model of IT services in India is way different from top IT companies in the US. Given the current trend, we do not see any major risk to earnings. If you look at the deal wins, there may be a little bit of a disappointment on the margin side but the overall growth trajectory in the current scenario is going to be quite good. Even LTTS which had an analyst meet yesterday is looking at about 19-20% kind of growth. So when you see these kind of statements coming out from IT managements, it reinforces the confidence. So we see this correction as an opportunity to buy into names like Infosys and HCL Tech. Zensar is something that we have been liking in the midcap space. It has corrected almost 25% after the block deal, so we think that this is a good entry point for some of the names for people who want to put incremental money into the market.
What is the outlook on QSR stocks like Westlife, Burger King and Devyani International?
Our basic hypothesis is that during the pandemic, smaller restaurants and hotels were grappling with cost-related issues and 30-35% of them might have shut down. The QSR as a theme has emerged far more stronger because of their balance sheets and more importantly their business model. We think that this entire space looks quite attractive in terms of a thematic investment. Within that, we have a preference for Jubilant FoodWorks, which is the largest player in the segment and has a very strong network offering. We also like Devyani International because there is a turnaround in both KFC and Pizza Hut. In both these franchises, we are seeing a turnaround in areas where they operate in. We think that there is going to be a decent growth visibility and so we have initiated coverage with a price target of Rs 190.
What is your top pick when it comes to Motown?
Within the OEM space, we like both Maruti and Mahindra & Mahindra. But given the fact that we have seen more strength in terms of volume growth, Ashok Leyland could also be a good interesting stock to play the CV cycle. So these are the three names that we like within the OEM space. We think that a large part of this supply-related disruptions seems to be over and we should see good growth coming back over the next one quarter or so. This correction provides a good entry point. From a global EV play and global auto perspective, even Tata Motors can be a good stock to have as that has also corrected almost about 10% from the top.
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