Two value stocks to buy at present

By Vipin Agnihotri

Take a look at two value stocks identified by The India Street.

Tata Consultancy Services (TCS)

As was the case with other IT stocks, Tata Consultancy Services was under selling pressure and fell from around Rs 1,300 in February 2007 to Rs 800 in January 2008. At this moment of time, it is trading at around Rs 899.95.

When I analyzed this stock, I found that its profitability growth has slowed down from 43 per cent in March 2007, to 24 per cent in December the same year. Point to be noted here is that the company added 54 new clients, with the biggest contract being a $1.2-billion full-services deal with The Nielsen Company. There is quite a good chance that global economic slowdown will create cost-control pressures that will see more work outsourced to India. As an investor, you can take advantage of that.

Infosys Technologies-

Widely been regarded as India's hottest software company, Infosys lost 30 per cent of its market cap last year, partly on fears of margins thinning due to the appreciation of the rupee. In the initial part of this year, Infosys saw an increase in buying interest as the market felt this stock has been oversold and has bottomed out at around Rs 1,400.

The rupee appreciation does not able to hinder Infosys from growing at a healthy clip. For example, in the December-2007 quarter, sales increase around 16 per cent and net profits 24 per cent. More importantly, Infosys added 47 new clients and 11,683 employees during the same period. This is a must buy stock for long-term investors.

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India's Information and Communication Technology to reach $24.3 by 2011

where is IT going?

India's information and communication technology (ICT) market could become as large as to account for almost 2% of the country’s GDP by 2011. Leading research firm Gartner Inc said that it expects India’s ICT market to grow at an annual rate of 20.3% to reach $24.3 billion by 2011. The ICT market was at $9.6 billion in 2006.

While India has made its mark in catering to the IT needs of overseas companies, domestic firms are also increasingly relying on IT to gain a competitive advantage. Gartner’s worldwide survey of CIOs showed that Indian firms would increase their IT spend by 13% this year, versus a global average of 3.3%.

“This increased spending by Indian CIOs is directed primarily towards building new business capabilities, with 30 percent of IT spend allocated for business growth and 19 percent towards business transformation,” Gartner added.

Technology stocks were under significant pressure last year. Their performance continues to be impacted by concerns over a slowdown in the West and the appreciation of the rupee.

Addressing the fears of a global recession, Partha Iyengar, head of research - India, Gartner, said, “Even if there is a recession, it does not mean that all goes out of the window. Because while the budgets might go down, CIOs priorities or the business demand will not be compromised. They will have to meet their customer and business requirements.”

Tata Consultancy Services reported a record profit for the fiscal third quarter after winning India's biggest services contract. Infosys beat expectations with 25% growth in net profit after tax in the quarter ended December 31. Satyam Computer Services’ revenue jumped 32.2% and net profit after tax climbed almost 29%. Wipro did manage to grow revenue by a healthy 32%, but its profit growth was only 11% due to higher salaries and the rupee appreciation versus the US dollar.

While Infosys has projected 20% revenue growth for the fiscal year ending in March, Satyam expects its revenue to climb 29%-29.2%.

Reiterating its neutral stance on the Indian IT services sector, analyst Julio Quinteros of Goldman Sachs said in a note to readers that revenue growth could decelerate over the next three quarters, with IT budgets being cut in the face of the US economic slowdown.

India is still growing and domestic demand for IT will definitely increase. The same should be the case with China. Will demand from the emerging markets be enough to substitute a slowdown in the West? Will the state of the US economy drag down global markets? Will companies in India’s IT services sector struggle a lot with rising salaries? While these questions can cause a frown, there is still ample reason to be bullish about India in general as well as the country’s ICT sector.