If you have a penchant for risk, there is no better time to buy into stocks, then during major events. The US Presidential elections is a tight race, but, Hillary Clinton seems to have an edge. In case you are betting on a Hillary Clinton win, here is what to buy.
Why Hillary Clinton win is good for IT stocks?
Hillary Clinton's win is good for IT stocks, because it keeps Donald Trump away and his policy to restrict H1 B visas. Indian IT companies use H1B visas to send employees abroad and get outsourcing jobs done. However, the use of H1B visas snowballed in the US, after Walt Disney World employees in the US lost their jobs in favour of individuals who were outsourced from larger Indian IT companies.
Trump has been clear that he would bring back jobs that are being weaned away by India and would work towards bringing down the number of H-1B visas issued every year. Clinton on the other hand has welcomed immigrants and has promised to include automatic green card proposal to science, technology, engineering and mathematics students.
So, which stocks to buy?
It is clear that companies like Infosys, TCS, Wipro who depend on H1B visas would find Clinton favourable. Some of these stocks have fallen to 52-week lows, which also makes them attractive. So, what are the stocks you should be buying from the IT pack?
MindTree is a good bet
Yes, there are several readers and analysts, who might wonder what we are doing suggesting IT at this point in time, when the chips are down. In fact, you should buy stocks when the chips are down. You cannot get good news and good stock prices at the same time. MindTree has fallen from levels of Rs 806 to Rs 426.
Bad quarter for MindTree
It was no doubt a bad quarter for the company. Net profit at MindTree for the quarter ending Sept 30, 2016 declined to $14.1 million. This was a decline of 23.6% q-o-q. However, there a few positives to take from the results. Clients in the $25 million category grew by 1 to 6. On the other hand clients in the $1 million clients grew by a decant by 9 to 107. We believe that MindTree can still report an EPS of Rs 30 for FY 2016-17. This means the stock is trading at a p/e of almost 14 times, which is not expensive. The stock also gives a dividend yield of 4%.
Infosys too had a bad quarter, but, not as bad as some others. However, we have not seen the Infosys share price at Rs 970 in a long time. In fact, like MindTree the stock has slumped to a new 52-week low. Infosys reported an EPS for the quarter ending June 30, 2016, of Rs 15.77. It is likely that it can report an EPS of close to Rs 62 for the full year 2016-17. This makes the stock not very expensive at under 15 times, one year forward earnings at the current market price of Rs 974. A good bet, if you are looking at contrarian stories in the Indian market.
How Infosys share price has moved?
We are recommending Infosys, because we see limited downside from here in the stock. In fact, on Friday even as the indices dropped the stock bounced back. The stock has now fallen from levels of Rs 1240 to Rs 970, which is an almost 25 per cent decline. The company has managed to do well when the chips are down, which always makes the stock a good pick.
Other IT stocks?
We do not like TCS and Wipro, as much as Infosys and MindTree. However in the short term, it is a good term to bet on any IT stock, if you believe that Hillary Clinton could become the next President of the US. A short term bounce in stocks cannot be ruled out.
The article is not a solicitation to buy, sell in securities or other financial instruments. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and the author do not accept culpability for losses and/or damages arising based on information in this article. The author and his family do not hold stocks mentioned above.