Upside likely in Infosys, TCS in CY24: Deven Choksey

Deven Choksey, MD, DRChoksey FinServ Pvt. Ltd, says “CY24 is promising to be a better year for many of the largecap companies where some of the large size contracts would probably start rolling in. And that is where stocks will get re-rated. So Infosys, TCS kind of companies hold a good possibility to see the upside in CY24.”

What do you make of the midcap IT sector which has massively outperformed both in terms of earnings as well as stock performance versus the largecaps? Also, what is your view on the Tata Tech IPO?

Themidcap IT stocks need to outperform because compared to the largecaps, their growth rate is relatively more steady. LTTS, LTIM, Cyient Technology, Tata Elxsi, KPIT and now Tata Technologies are the companies which are basically having a very strong focus on engineering R&D. As a result, their customer base completely rely on them for the sourcing of the business.

To a greater extent, this has played out very well in a significant manner over the last few years, I would say. It is growing even stronger from the current level. Most of these companies are having the order book, which is also suggesting that they are going to have the repeat orders continue in the coming period as well because of the niche that they have created.

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So in my viewpoint, these companies are relatively more stable. They are attracting a higher amount of business and they are also delivering faster compared to the largecaps as far as the order delivery is concerned. So to that extent, we are seeing higher performance in the financials as well. In my viewpoint, these particular companies are remaining relatively stronger and predictable compared to largecaps which are growing at a relatively smaller rate of growth of course also on the size.

Maybe that is the reason one is strong and giving higher valuation to these mid-tier IT companies. However, the situation might get corrected now for largecap companies. They have significantly underperformed for a variety of reasons. I would think CY24 is promising to be a better year for many of the largecap companies where some of the large size contract would probably start rolling in. And that is where stocks will get re-rated. So Infosys, TCS kind of companies hold a good possibility to see the upside in CY24.

What do you make of the entire hospitality space? Are you cherry picking within this entire space?

The conditions are basically playing a major role in giving a good amount of business to most of the hospitality players – be it Indian Hotels, East India Hotels or even the mid-tier small hotel segment. On one side, the business tourism, on the other side, the sports tourism and now spiritual tourism i added. All these areas are contributing to a significant amount of demand as far as the hotel rooms are concerned.

That is where one is seeing a higher amount of traction, with a relatively higher amount of average room rents. So from that perspective, these businesses are doing extremely well. More importantly, be it ITC, be it Indian Hotels, they have all been following the asset-light model strategy now, wherein most of the properties that they are working on now is on an operational management contract, vis-à-vis earlier situation of owning the assets.

To a greater extent, the financial ratios become very favourable because of the strategy that they have adopted. In my viewpoint, the businesses look great. Maybe valuations have, to an extent, justify it so, for the next one and a half year, two years in advance. Any correction in the market price of these stocks is a good buy opportunity and we remain positive about the sector as well.

With EV adoption picking up, which are some of the auto companies that you believe can really leverage this opportunity and stand tall?

In auto ancillary, most of the players have aligned themselves with the requirement of the EV and that is a good sign. The likes of Uno Minda and Minda Corporation, of which pne is catering to passenger vehicles and the other to the two-wheeler segment. All of them have adapted to the requirements of the EV players, though the volume remains comparatively small. However, these companies have already started positioning with the product lines, the products which are basically being supplied to some of the larger OEMs.

In my viewpoint, auto ancillaries remain relatively more favourable compared to the OEMs at this point of time because auto ancillaries are basically having the mixed portfolio, the ICE portfolio as well as EV portfolio, which probably allows them to even take leverage on the profitable ICE portfolio when they are selling on the smaller size EV portfolio products. So to a greater extent, this is becoming a relatively surer and stronger play going forward as well.

There are many auto ancillary companies which are simultaneously creating their presence into the EV space and one can possibly look out for individual names but the volume remains comparatively smaller, so they are not coming up on the surface. However, these two names we normally track, so we find that they are interestingly positioned at this point of time.

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