Gaurang Shah, assistant vice-president, Geojit BNP Paribas Financial Services, tells Krishna Merchant that though the information technology (IT) bellwether Infosys Technologies reported a lower-than-expected set of numbers for the December 2010 quarter, the fourth quarter will be much better. Edited excerpts:
Are Infosys Technologies’ December 2010 results in line with your expectations?
The results did not meet our expectations and there was a slight disappointment. We expected the company’s bottom line and top line to grow three per cent and 3.5 per cent (sequentially), respectively.
Will the company be able to sustain volume growth going forward?
I expect the fourth quarter to be much better. Infosys has always given a conservative guidance as far as the future is concerned.
However, one important point to note is that there is growth in the manufacturing and BFSI (banking, financial services and insurance) segments. Overall, we maintain a positive bias on Infosys and have recommended a ‘buy’. It should rise to Rs 3,200-3,240. We maintain a price target of Rs 3,540 from a long-term perspective, say 12 months.
Do you expect the company to raise the revenue growth guidance from 25.7 per cent to 26.6 per cent in 2010-11?
Infosys has given a reasonable guidance and any forward looking statement should be seen with a conservative approach. The management has given decent guidance and I will not be surprised if they overshoot it.
How do you see currency appreciation affecting margins of IT companies (large and midcap)?
The general perception in the market is that the dollar may remain strong in the first half of the calendar year 2011 due to problems in the euro zone and recovery in the US. If the recovery is not sustained, the US may need a third round of quantitative easing (QE3). If that happens, there will be weakness in the dollar.
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But, over the last couple of quarters, sufficient amount of market currency operations have been taken by Infosys and other large and midcap IT companies. Hence, as far as gross currency fluctuations are concerned, it is not going to impact the bottom line much.
What are the other key risks you perceive for Infosys and other IT companies?
Rising wages is a concern. It will have a direct impact on bottom line. In service-oriented sectors like IT, companies tend to withhold brains that have capabilities to improvise on software. Infosys may look at other cost-cutting measures to take care of rising wages.
Slow recovery in the global market and unemployment rate could hamper outlook, but it is short-term negative. In the medium to long term, I do not see any major overhangs.
Do you feel IT stocks are fairly valued at the current levels?
I believe IT stocks are fairly valued. Infosys, Wipro, TCS, Tech Mahindra, HCL Technologies and Rolta provide good opportunities to buy on dips.
How should investors play the pullback in the markets?
From short-term perspective, investors should take the money off the table closer to 5,940-6,000 levels (for the Nifty). Anything below 5,700 will be an opportunity to buy.
In the long run, I expect much better times. Currently, there is a lot of domestic news flow, starting with the earnings season that unfolded today. The credit policy and the Union Budget will be events to watch out for.