IT stocks close to peak multiples; a stock-selective approach is better: Apurva Prasad
Apurva Prasad, Vice President, HDFC Securities, says IT companies with higher BFSI exposure, would be candidates that can potentially surprise on earnings. The other element is if you look at the guidance that the companies have provided for the year, most of the guidance does not bake in the macros recovery or macro getting better. Among mid-tier companies, the ones that continue to do relatively better versus peers would be Persistent Systems. Also, with higher BFSI exposure, names like TCS can be candidates.
What exactly has changed for the IT sector? Of late, a lot of people have turned bullish on the IT space in particular. So, what is your view? Apurva Prasad: We have been saying this for over a quarter now that the growth and earnings cut that was taking place in the sector has bottomed out. That is very evident. The fact that the transition from protracted IT spending, and low discretionary onto normalisation into the second half is the other thing that we have cited.
Thirdly, the relative under-ownership in the sector always provided a tactical opportunity. A combination of these three led to a 30-35% PE re-rating in anticipation of some positive markers. Deal cycles, for example, in some pockets seem to be improving. So, I would say that is a positive. For some of the vertical segments within BFSI, the commentary seems to be slightly better.
When it comes to earnings uptake, which is the space where you are expecting more? Do you expect the software companies to benefit more from earnings upgrades
