Bullish on TCS, expect 2.4% growth in dollar terms in Q4FY22: HDFC Securities’ Apurva Prasad

He said, “We are positive on the stock and we have an 'add' rating on TCS. We do expect them to deliver about 2.4 percent growth in dollar terms and well above what they have done historically over the past decade in terms of even incremental revenue addition quarter on quarter (QoQ), and in absolute terms, that number is going to be almost 2x of what they have done.”

However, he expects some headwinds for expansion from the cost of capital side.

"We certainly see growth reverting to medium-term baseline levels and there will be a lot lower dispersion of growth in FY23 as compared to FY22.  These two things are a higher possibility and we do see some headwinds for  multiple expansion purely from a cost of capital point of view, but from a medium-term perspective, some of those drivers are fairly intact," Prasad added.

He believes there can be a positive surprise from a few IT companies over the next few quarters. “There is a case for a positive surprise in some of the stocks over the next few quarters. The probability of that is relatively higher within the mid-tier space, but if I have to call out names that we are relatively more positive on- it is Infosys within tier-I and within mid-tier, Mphasis and Persistent Systems,” Prasad said.

On Infosys, he shared that growth premium is visible for it. Prasad said that he would also watch for the margin guidance. “One has to see the growth premium; what was 100-200 bps growth premium of tier-II or mid-tier IT versus tier-I has almost gone to 10 percentage point. I think on a more sustainable basis, 500-600 bps is something which they can deliver,” said Prasad.

Watch the video for the full interview.