Infosys and HCL Tech remain our top picks in IT sector: Mitul Shah

"One major surprise is that in case of TCS and Infosys though revenue growth was slightly higher than expectations but margins wise both the companies reported slightly subdued performance," says Mitul Shah, Reliance Securities.

Your take on the numbers because it seems whether we take the case of TCS or Infosys and now HCL Tech as well the top line growth is strong. So that worry around higher furloughs and may be demand slowdown is not really coming into the picture because deal wins for both Infosys as well as HCL Tech this time around are not really too concerning. Yes there is a bit of slowdown for HCL Tech but that is par for the course?
Even during Q2 results, these both companies Infosys and HCL Tech had delivered strong outperformance. They both were outlier in terms of deal wins or margins or guidance compared to most other companies. One major surprise is that in case of TCS and Infosys though revenue growth was slightly higher than expectations but margins wise both the companies reported slightly subdued performance or below expectation.

Here there is a strong margin bit coming in 19.6% margin. EBIT level is really big positive surprise compared to roughly 18.5-18.6. So more than 100 bps bit coming on margin side. Another positive thing is that employee addition of 3000 units was there compared to both the Infosys and TCS. And third one is the TCV deal win whereas TCS witnessed a slight moderation or decline on Q on Q basis but Infosys of course a strong outbid but HCL's also TCV Q on Q is almost led in a challenging uncertain environment that is indicating company’s strength to deliver sizable revenue chunk in coming quarters and in FY24.

If I had to ask you what your top bets would be in the sector after seeing the performance of the top three IT companies what would your answer be, where is that you can see the maximum upside?
Last two-three quarters we moderated and downgraded the sector but Infosys and HCL Tech remained our top picks. Last quarter we upgraded HCL Tech so we still remain positive on these two and they remain our top pick. For TCS because of the valuation as well as management commentary being slightly weaker in terms of a uncertainty on the US side business and decision making in US and US being sizable chunk of overall pie, we remain negative and we have sell recommendation on TCS where as we have buy on Infosys and HCL Tech.


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