This Morgan Stanley tactical largecap idea can deliver 15% return in a year

NEW DELHI: Infosys is one stock in the IT space that Morgan Stanley thinks will outperform in the next one year. The investment bank has chosen it as its tactical pick and said the share price should rise relative to the country index over the next 60 days.

Infosys is expected to perform brilliantly in terms of business growth and narrow down its differences with the market leader,

(TCS). It is also likely to outstrip its own expectations.

“We believe Infosys will lead on revenue growth versus its peers in FY22 and expect it to raise its revenue guidance over the coming quarters (we expect 15.5 per cent revenue growth in cc terms in FY22 vs guidance for 12-14 per cent). Infosys’ strong deal wins and good commentary on pipeline highlights consistent market share gains over the last few years,” said Gaurav Rateria of Morgan Stanley.

Infosys has already narrowed the margin difference with TCS, which helped deliver stronger earnings growth. The analysts are confident that the valuation gap with the market leader will also come down.

“We expect Infosys to deliver margins higher than the mid-point of its guidance (22-24 per cent) in FY22. Its valuation discount to TCS has narrowed and is likely to move in line with that of TCS’s valuation with a stronger growth performance,” Rateria added.

Morgan Stanley in its probability-weighted assessment is taking a 40 per cent probability of a bull case, driven by strong growth momentum in the recent past and an improving IT spending environment.

The bear case gets about 10 per cent weightage and the base case 50 per cent. The lower bear-case probability reflects a lesser likelihood of client spending being affected due to macro conditions and/or disruption in operations due to Covid.

“We assume a 10.8 per cent cost of equity and 4.5 per cent terminal growth across scenarios,” Rateria said.

Morgan Stanley has a 12-month target of Rs 1,800 on the scrip, meaning an upside of 15 per cent. The stock has already surged 115 per cent in the last one year. On Tuesday, the stock closed at Rs 1,571.

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