Lok Sabha election 2019: TCS vs Infosys, experts reveal which IT stock should you bet on

Amid positive global cues forcing foreign institutional investors to pump money into the Indian equity market, Indian indices have been scaling new-high in the last fortnight. Around Rs 30,000 crore has been pumped by the FIIs in March 2019, which is expected to continue as the majority of opinion polls suggest that Narendra Modi led NDA government is coming back to power. However, in such a scenario, an investor has to maximise his or her investment. Since the majority of the IT sector stocks have bee performing well, it becomes difficult for an investor to choose which IT stock is better. Same is the case with TCS and Infosys.

Speaking on the TCS versus Infosys selection Ravi Menon, Research Analyst — Equity at Elara Securities told Zee Business online, "Most investors we speak to think highly of both TCS and Infosys. While we agree they have been and continue to be good firms, we believe they now operate in different orbits. TCS has pulled ahead significantly over Infosys with strong gains coming in for TCS over CY12-15 when Infosys’ execution wobbled. TCS EBITDA margin is almost back to where it was in FY05 while Infosys EBITDA margin has declined by 758bp as on 3QFY19. We believe TCS has structural tailwinds that will widen the margin gap."

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Elaborating upon the fundamentals of both counters Ravi Menon of Elara Securities further added, "If we consider incremental organic constant currency revenue, TCS has improved its market share significantly over recent years while Infosys has just managed to get back to its CY10 level after losing nearly half of it over CY10-14. However, perception seems to be that Infosys has gained growth momentum against TCS as P/E premium has shrunk from the highs of 28 per cent as on April 30, 2018, to a mere 10.3 per cent as on 29 March 2019."

On his suggestion to the equity investors in regard to TCS versus Infosys Ravi Menon said, "We had analyzed Infosys was entering FY19 with limited traditional margin levers and TCS was likely to widen growth and margin gap with Infosys. We believe the 19.8 per cent private equity premium assigned for TCS based on Consensus estimates is inadequate. We are well ahead of Consensus on TCS and below Consensus on Infosys. We reiterate Buy on TCS with a new target price of Rs 2,400." Currently, the counter is oscillating around Rs 2,050 levels.

However, giving the outlook for both counters in short-term perspective Prakash Pandey, Director & Head of Research at Fairwealth Securities said, "Technically, in the short-term perspective, Infosys sounds better and poised to give around 4-5 per cent return while in long-term TCS would be giving better returns." So, selection of the stock depends on whether the investors want to go long or in a mood to invest for short-term.