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Why Goldman Sachs is bullish on TCS, HCL Tech

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TCS may become an $85 billion giant while HCL Tech's market capitalization is likely to double by fiscal year 2017 according to a report on Indian tech companies by Goldman Sachs. HCL Tech is India's fourth largest IT software services exporter.

Goldman's optimism had little effect on HCL Tech shares, which traded lower in a flat market on Friday. That's because of a broad selloff in IT stocks since New Jersey-based Cognizant's filing with the Securities and Exchange Commission (SEC) on Tuesday was interpreted by analysts as a proof of slower growth ahead.

Cognizant clarified on Thursday that its filing to the SEC was only on management compensation and not necessarily a growth indicator, but the BSE IT index, comprising 12 stocks, fell for the fourth straight day on Friday. At 12.35 p.m., TCS shares traded 0.66 per cent lower at Rs 1,274 on the BSE. HCL Tech traded 2 per cent lower at Rs 613.45. The broader Sensex was up 18 points at 19,505.

Goldman Sachs said India's IT outsourcing sector is in a sweet spot and Indian companies would growth at 15 per cent Compound Annual Growth Rate (CAGR) over FY13E-FY16E from 12 per cent currently.

HCL Tech and TCS - India's biggest tech firm- are Goldman's preferred picks in the IT space. The investment bank says the two are well positioned for larger market share in contrast to say Infosys or Wipro.

HCL Tech's market cap can double to $17 billion by FY'17, Goldman said. Regulatory opportunity can boost revenues and returns by 250 basis points and 400 basis points, Goldman said.

TCS will gain the largest share of the revenue pie, Goldman said, adding that its market cap can rise to $85 billion by FY17.

Story first published on: December 07, 2012 13:00 (IST)

Tags: Cognizant, TCS, HCL Tech

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