IT Stocks – Multiple triggers to ‘BUY’: Edelweiss

IT stocks have corrected sharply over the past couple of months led by an appreciating INR and portfolio shifts. We strongly recommend buying into IT companies at this juncture due to: (i) limited impact of INR appreciation (1.5-3.0%), which can be offset by robust domestic demand and a few concrete initiatives by the new government (restoration of STPI status, uniform taxes and improved relations with the US); (ii) lower multiples, almost close to historic lows of post Lehman crisis (refer table 2 and 3), in an improving demand environment; and (iii) huge cash balances that can be returned to shareholders via dividends or buy back, thereby improving RoE. We reiterate ‘BUY’ on Infosys, Tata Consultancy Services (TCS), HCL Technologies (HCLT) and Tech Mahindra (TECHM) with target prices of INR4,307, INR2,538, INR1,591 and INR2,229, respectively.

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