Motilal Oswal Suggests A ‘Hiding Space’ As Earnings Growth Turns Scarce
Motilal Oswal picked Infosys, Tech Mahindra and HCL Technologies as its preferred bet.
Motilal Oswal Financial Services said India’s software services exporters are among the few bright spots for investors amid a stock market downturn.
“I think IT [sector] must be part of any portfolio today as it is a defensive bet,” Gautam Duggad, head of research at the financial services firm, told BloombergQuint in an interview. “A moderate growth visibility is still present in the sector and their balance sheets are very strong.”
Duggad said while the sector’s revenue growth may recede to 5-7 percent for the financial year ending March 2020, it may still be enough to outperform the benchmarks. “Their margin potential looks more favourable due to the currency depreciation,” he said.
Rupee depreciation is considered as a tailwind for the information technology sector as the companies bill majority of their global clients in U.S. dollars. The domestic unit has fallen 3.3 percent in August, making it the second-worst performing Asian currency.
Motilal Oswal also said the IT companies have returned 80-100 percent of the free-cash flow generated over the last three years to shareholders and the trend is expected to continue. Large-cap IT companies “hardly” facing any issues of corporate governance in the recent past, according to Duggad, is yet another positive sign. The brokerage picked Infosys Ltd., Tech Mahindra Ltd. and HCL Technologies Ltd. as its preferred bet.
IT stocks are a strong hiding place in the market where growth is looking very scarce. IT sector is not cheap [in terms of valuation] but it’s also not exorbitantly expensive like consumer stocks.Gautam Duggal, head of research, MOSL
The Nifty IT Index has gained 10.5 percent so far this year, and is the top performer among the 11 sectoral gauges in the National Stock Exchange.
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