Motilal Oswal: India’s IT Sector Stands Out; Making A Bigger Overweight In Model Portfolio
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Motilal Oswal Report
Q1 FY21 corporate earnings have begun with several IT firms exceeding our expectations, in turn resulting in material earnings upgrades. Key positives include healthy deal wins, a robust deal pipeline and better-than-expected guidance for FY21. This has driven 12-14% earnings upgrade for Infosys, HCL Tech and Wipro.
IT offers relative earnings comfort coupled with solid balance sheet, cash flow, Return on Equity (RoE) and payout metrics in such current volatile and disruptive times. Tier-I IT companies have best in class balance sheets, resilient business models and excellent management pedigree and yet valuations are not expensive. We expect the IT sector’s relative earnings outperformance to sustain for the rest of FY21. Also, the relative growth divergence verses other sectors should support re-rating of the IT sector. Thus, we have further increased our allocations to the IT sector and added 100bp to Infosys, and introduced Wipro in our model portfolio. We have funded this by trimming our positions in Utilities.
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