Infosys could remain the ‘vendor of choice’ even if recession comes, say analysts
- Shares of information technology companies have been tumbling sharply since last one month mirroring its global counterparts on fear of looming recession in the US.
Bluechip IT stocksthat are typically considered as a safer bet during investing are now seeing huge sell off.
- Although the commentary around the sector is concerning, analysts feel among other IT players Infosys could be the best bet in the situation.
AdvertisementIndian IT companies have been in the ‘bear radar’ for a while now as they are witnessing a sharp fall —- twice deeper than the benchmark indices.
This is a part of the tech meltdown that is seen in the US as well. Both these falls are triggered by the fear of a looming recession in the country which is also the main market of Indian tech majors.
“The stock prices are correcting on the possibility of recession. Known factors like margin will be hit because of supply side issues, inflationary environment and also on news that Fed will increase interest rates,” said Ashish Das, IT analyst at Sharekhan.
There is still a winner in the situation -- Infosys.
Even in bad times, one tech major could outdo the others and most analysts believe that it would be Infosys. The Bangalore based tech company has had a successful run in the past 3-4 years aided by strong execution and large deals.
“A good part of the success in the past 4-5 years can be attributed to consistent large deal wins and strong account mining at the top,” said Kotak Institutional Equities, which expects that Infosys will lead the industry on growth.
It has the cream of IT clients especially in the banking sector— eight of top ten 10 US banks and four out of top six European banks.
“Infosys has done well on large deal wins and mining top accounts. In fact Infosys has had better conversion of over $50 million clients to the next level relative to
Infosys is the digital partner of choice
The banking industry has been going through a rapid transformation and Infosys has aided a large part of this transformation.
“Infosys has benefited from rapid transition of the industry to digital ways of operation. The company’s banking software suite, Finacle has been adopted by several firms including incumbents, challengers, neo banks and fintech and enables entry to larger IT spending. We expect strong growth to continue,” added the report by Kotak.
Its digital and cloud strengths will help it become an industry leader in the next two years. “They are considered as a preferred partner for any digital transformation (by clients),” said Das.
AdvertisementIf and when the industry witnesses a slowdown due to recession, clients would ‘prefer’ top rated companies like Infosys, say analysts.
“When recession comes, the market will consolidate. In such a situation, clients will choose the best vendor who offers more value added services. In the case of Infosys, the company has made enough investments in this regard and now they are getting the benefit of it,” said Das.
Investment Picks 📢 Sharekhan FNA Infosys: Analyst meet takeaways – demand to remain strong despite macro headwinds; focuses on supply-side fulfillment, strategic M&A & building capability to drive strong growth; levers to improve margin over long-term; we have Buy on $INFY.NSE. @Sharekhan $SENSEX $NIFTY50.NSE— (@Sharekhan) June 01, 2022
Industry sees strong demand
So far management of IT companies including Infosys feel there is no visibility of impact on technology spending by clients on the possibility of recession.
Analysts feel technology spending will be the last thing for companies to cut on because of pressure on revenues as most companies are focusing on cloud migration and digital initiatives.
Most businesses across sectors now want both offline as well as online channels. So large companies are still investing to strengthen their business model so that they can stay relevant to customers.
“In the current situation, investors should be selective in investing in IT companies rather than going for any company. One should look for companies where there is good visibility of growth and where firms can manage their operating margin in a tough environment,” said Das.
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