BUY OR SELL-India tech stocks still a good play or overpriced?
* Bulls think worst over for IT as new mkts tapped for growth
* Bears wary of valuations, see better bets elsewhere
By Sumeet Chatterjee
BANGALORE, July 28 (Reuters) - Major Indian software services companies have smashed estimates in their April-June earnings, but are cautious in their near-term forecasts due to uncertainty about a revival in technology spending by global firms.
Shares in Tata Consultancy Services Ltd (TCS.BO: Cotización), Infosys Technologies Ltd (INFY.BO: Cotización) and Wipro Ltd (WIPR.BO: Cotización), the top three outsourcing firms, have risen between 80-103 percent this year, compared to a 60 percent rise in the main Mumbai market .BSESN. Is there still upside left to the shares or the rally is all set to ebb due to uncertainty about near-term business growth?
MORE STEAM LEFT
Bulls say signs of some stability in global financial sector augurs well for the Indian outsourcers, whose clients include Citi, Goldman Sachs and Credit Suisse. Infosys and Tata Consultancy are expanding in markets such as Latin America, Europe and Asia to boost growth and reduce their focus on the U.S., which brings in more than half their revenue. "The worst for these companies is clearly behind us," said Tarun Sisodia, an analyst with Anand Rathi Financial Services. "People have factored in flatish to positive growth in this year, but the whole of next year will be significantly better."
Sisodia upgraded Infosys and Tata to buy from sell after the June quarter earnings and has a 12-month price target 32 percent above the current level for Infosys and 54 percent for Tata.
"We are at the cusp of an upgrade cycle... these stocks will definitely outperform the market," he said. "There is more steam left in IT companies." K.K. Mital, head of portfolio management services at Globe Capital, said demand for IT stocks rose after the firms reported better-than-expected profit margins in their quarterly earnings and said pricing pressure had eased. "We are of the view that the business has stabilised," said Mital, who holds Infosys in his portfolio. "There are new client additions happening for the companies and cost reductions and restructuring of some operations are also positive for growth." STRETCHED VALUATIONS Continuación...