Morgan Stanley Gives A Thumbs-up To IT Stocks

Morgan Stanley has advised investing in IT stocks as it sees more upside in them. Note that the IT stocks have shown a fantastic performance this year, with all large-caps outperforming the broader market.

According to news reports, Morgan Stanley has increased price targets of Infosys, Wipro and HCL Tech, as it holds that select stocks from the sector should do well in next 12-15 months due to higher EPS expectations and re-rating of the stocks. It believes that the FIIs have less participation in these stocks, and hence, some buying can be expected from other FIIs as the financial performance would improve going ahead.

So, why is Morgan Stanley bullish on the IT stocks? Well, the broking house believes that the easing of economic conditions in the developed countries, improvement in the key economic data, positive commentary of corporates on discretionary spending and a strong order book of IT companies are likely to be growth drivers for the IT companies.

It has raised the EPS estimates of the IT stocks between 5%-25% over FY14 and FY15 (expected) above the consensus. The 1-year price target of Infosys has been revised from Rs 3225 to Rs 3695, and it remains overweight on Wipro with a price target of Rs 550. On TCS, it is seeing a price target of Rs 2000-2100, while that for HCL Tech is Rs 1200.

We have been backing the Indian IT story for a long time now. In Dalal Street Investment Journal (Vol 28, Issue No. 11, dated 19 May, 2013), we had given a ‘buy’ call on all the frontline IT stocks. Those who had invested based on our recommendation would have gained more than 30% in IT stocks since the time of our recommendation. We remain bullish on this sector, and investors should make use of dips to accumulate IT shares.