Infosys, TCS shares: Why BNP Paribas is bullish on these 2 Indian IT stocks

The BNP Paribas IT services industry outlook index indicates that near-term revenue growth outlook remains strong, helped by strong deal wins. While management commentary has turned cautious given fears of a macro slowdown, most see it as transitory and expect the technology upcycle to continue. 

“That said, pockets of weakness are emerging in verticals such as hi-tech, telecom and healthcare besides retail, BFSI and in Europe. Given the strong demand environment, the revenue outlook for the December quarter and FY23, shared by IT services companies, continues to be strong,» it said in a note.

The brokerage house has maintained Buy rating on Infosys shares with a target price of 1,585 apiece. “Downside risks to the DCF-based TP are sharper-than-expected decline in global economic activity and GDP growth, margin pressure from increased competition, sustained INR appreciation vs the USD, and current cost inflation seen by IT services companies not getting fully offset by aggressive fresher hiring, INR depreciation and price hikes.»

The brokerage said its top stock picks in Indian IT space — Infosys and TCS gained the most market share year-on-year (YoY) and quarter-on-quarter (QoQ), respectively, among their India-based peers.

It also has Buy rating on Tata Consultancy Services (TCS) shares with downside risks its TP being sharper-than-expected decline in global economic activity and GDP growth; margin pressure from higher competition; moderation in demand leading to higher-than-expected impact on margin; and sustained appreciation of the INR vs the USD.

India’s second largest IT services company Infosys posted 11% year-on-year (YoY) rise in consolidated net profit at 6,021 crore for the second quarter ended September 2022. Whereas, top Indian IT company TCS reported an over 8% growth in its September quarter net profit at 10,431 crore.

“Based on management commentary about the outlook of key verticals, geographies and business parameters, we have built an industry outlook index. A positive figure indicates an improving sequential outlook on a particular parameter, while a negative figure points to a deteriorating outlook,» BNP Paribas added.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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