Why top-4 global brokerages are turning positive on Indian IT sector 

Rakesh Jhunjhunwala holds Position in Geometric Ltd (Rs.75.15) & Aptech Ltd (Rs.57.10)

NEW DELHI, Aug 29, 2013: Amid global uncertainty and a sharp fall in the rupee, analysts at top global brokerage firms - Jefferies, CLSA, BofA and HSBC - have upgraded their outlook on India's IT sector.

According to analysts, IT stocks will keep on rallying despite negative headwinds related to US Immigration Bill, but weak rupee and smart recovery seen in the global economy, especially in the US, is likely to infuse more interest in IT stocks.

The BSE IT index has rallied a little over 5 per cent so far in August as compared to nearly 7 per cent fall in the S&P BSE Sensex, as of data collected on August 28.

The Indian currency has plunged a little over 13 per cent in August. This favours export-oriented firms with zero or relatively low foreign debt.

Out of the four brokerage firm, Jefferies has very aggressive target prices on all the three front line IT stocks. The brokerage firm maintains 'buy' on Infosys and has upgraded its target price to Rs 3675, translation into a gain of 17.7 per cent form its Wednesday's closing price of Rs 3120.30.

TCS and HCL Technologies are also on brokerage firm's top 'buy' list. Jefferies has upgraded their target prices to Rs 2215 and Rs 1260, respectively. The increased target price on TCS and HCL Technologies translates into an upside of 16.29 per cent and 28.8 per cent from Wednesday's closing price.

Although US Immigration reform is delayed but still poses significant risk as most Indian IT companies generate revenues from the US markets.

BofA-ML raises target price on IT stocks on demand uptrend, rupee weakness. "US Immigration reform is delayed but not dead but still poses a key risk to the sector," added the report.

The brokerage firm has a 'BUY' rating on Tata Consultancy Services but has upgraded its target price from Rs 2100 from Rs 1860 earlier. Infosys and HCL Technologies are also on the top 'buy' list with increased target price of Rs 3500 and Rs 1100, respectively.

According to analysts, companies which generate revenues from the US and European markets, which are showing signs of economic recovery, tend to protect investors when there is a slowdown in local core sectors and a sharp depreciation of the rupee.

The measures taken by the government to rein in the rupee has met little success so far. The deteriorating macro economic situation provides good investment opportunity in the IT sector.

"On the contrary the more mess-up the policymakers make on the macro front, it benefits IT companies and makes them more attractive. So, it is actually very ironical," said Vijai Mantri, MD & CEO, Pramerica Mutual Fund in an interview with ET Now.

Courtesy: The Economic Times