SMC Global Views on Large Cap IT Stocks - Infosys, TCS

Infosys

Infosys is the leading software company in India and is held in high esteem by clients and competitors alike. The company has a global footprint with over 40 offices and development centres in India, China, Australia, the Czech Republic, Poland, the UK, Canada and Japan. The company's stock quotes below 15 times trailing FY08 EPS hence offer margin of safety for long-term investor. The company is virtually debt-free hence insensitive to rising interest rates. Funding won't be problem for Infosys due to under leveraged balance sheets and positive free cash flow generation capacities, which is evident from Infosys' cash offer for buying AXON Group Plc, for a consideration of $753 mn. The appreciation of Dollar against Indian Rupee is a very healthy sign for the IT sector in the current environment. The company is on track to meet the volume growth guidance for the fiscal.

TCS

At current levels, the company generate positive free cash flow for an investor. We believe in these testing times, Tata Consultancy Services can widen their product portfolio through inorganic route. For instance, TCS acquired Citigroup captive catering to banking, financial services and insurance (BFSI) clients for Rs 2,272 crore. TCS had guided for gross employee additions of 30,000-35,000 employees for FY2009 at the end of FY2008. It has maintained this target, signifying confidence in its ability to win more deals and drive growth. The unchanged hiring target is an encouraging sign. Further, TCS is expected to incur minimum losses on account of forex due to conservative hedging practices. It is an attractive bet as the current valuations factor in the worst and downside from the current stock price is limited.