Markets have almost stagnated near the 28,000 levels, with the Sensex neither breaking-down, nor going higher. It seems stuck in this range for many weeks now. However, fund managers and investors seem to be adopting a sell on rally tactic and each time, the market goes higher, they dump stocks. An interesting trend has also emerged, where investors are buying banking stocks and selling IT stocks. So much so that several blue chip IT names like Infosys, TCS and Wipro are close to their 52-week lows. Take a look at some A group stocks that have hit 52-week lows:
MindTree, a relatively smaller IT company as compared to Infosys and TCS, was another IT company that reported a dismal set of results. The stock has now plunged to a new 52-week low of Rs 450, on the NSE.
Revenue at $193 million saw a decline of 3% q-o-q. Net profit on the other hand at $14.1 million saw a fall of 23.6 % q-o-q.
The company's results were not a shocker and largely came in line with what analysts were estimating for IT companies - and that was a poor quarter. One important thing to remember is that traditionally the Sept quarter is a strong quarter for IT companies. The management commentary has been positive with Rostow Ravanan, CEO & Managing Director, Mindtree saying, "We are encouraged by our new wins and strong pipeline. With our investments in digital and managed services, our strategic direction will continue to drive positive outcomes in the medium term."
Growing the number of deals
While this may have been a good quarter, the company has managed to show some traction in its business. For a major US airline, Mindtree was chosen as the strategic quality engineering and assurance partner to provide testing services for their entire Commercial Application Portfolio. This is also Mindtree's single largest independent testing deal in recent times.
In the $1 million category, the company managed to add one more client, taking the count to 107. In the dollar 25 million category the clients of the company grew to 6.
For the quarter ending Sept 30, 2016, the company reported an EPS of Rs 6.80. Even if we assume the company betters its performance and reports an EPS of Rs 28, the stock trades at a p/e of 16 times. This is more or less in line with the price to earnings multiples of biggies like Infosys. The price to book at 3.16 times, is a little expensive. If you get the stock at Rs 420, it could be a good pick. This is also because the dividend yield itself works out to a healthy 3.55 per cent.
Tata Elxi is another A group stock that has hit a 52-week low of Rs 1250 . It is a part of the Tata Group. It is a design company that blends technology, creativity and engineering and caters to industries like communications, consumer products, defence, healthcare, media & entertainment, semiconductor and transportation sectors.
The company has so far not declared its quarterly numbers for the quarter ending Sept 30, 2016. However, the company's net profits have grown every quarter from the last 3 or 4 quarters. For the quarter ending June 30, 2016, the company reported a net profit of Rs 42 crores on a small equity of Rs 31 crores. The EPS of the company translated to Rs 13.80. We believe, even if the company does an EPS of Rs 55, the stock is around 20 times its one year forward earnings. This not cheap nor expensive. If the stock falls below Rs 1,000, it maybe time to grab the stock.
Stock price movement of Tata Elxi
Shares in Tata Elxi have moved from a 52-week of Rs 2,396 to the current price of Rs 1,272. In short, the stock has seen a sharp decline in the last few weeks. Technically, the stock looks heading downside and it is best if one lets the stock fall below Rs 1,000. Even if you are a long-term investor it makes sense to avoid the stock, and buy only below the mentioned levels.
Infosys, TCS and Wipro
These are all Nifty stocks, which are very close to their 52-week lows. Infosys is trading at Rs 1012, against its 52-week low of Rs 996, which fell on the day of results. On the other hand Wipro at Rs 471, is just Re 1, lower than its 52-week low of Rs 470. TCS, has some way to go, but, it can hit lows as well. Technically, all of these stocks are slated to fall lower.
Do, TCS, Infosys and Wipro look good for long term?
One thing is clear, that client spendings are on the decline. Some industries like oil, which has been Wipro's forte has been hit badly, because of falling crude prices. The BFSI vertical has also taken a bad hit for come companies like Infosys. Movement to digital is gaining traction and some companies have not moved fast enough.
We believe that these stocks are headed lower and the sector is best avoided for the time being and bought into, after a few quarterly results are analyzed.
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