Infosys impact: research firms, banks to reshuffle portfolios

Mumbai:The recent adverse impact of Infosys on the stock markets has forced investment banks and research firms to reshuffle their equity portfolios.

Kotak Securities, the equity research arm of the diversified Kotak Mahindra group, has dropped Infosys Technologies from their top 10 favoured companies list and replaced it with Hindustan Petroleum Corporation (HPCL).

The investment banker expects the Sensex to be fundamentally unsustainable beyond the 3500 level because the earnings of Sensex companies are expected to grow at 12.1 per cent in the financial year 2004 as against 22 per cent in 2003. Accordingly, the Sensex is expected to remain range-bound between 2700 to 3700 levels as against 2800-4100 set earlier.

Says IL&FS Investment chief operating officer (institutional equity business) Vipul Dalal: "Most research firms are advocating an overall reduction of exposure in the new economy counters and look for safer bets in banking and commodities. We are looking at those companies that are globally competitive, well managed and reasonably valued at current levels."

Kotak Securities in their research report said it expects the margin pressure to continue on the back of structural changes in the technology sector. The Infosys guidance has indicated a continuing billing rate pressure, labour price inefficiency and tangible wage-cost increase. "The margin pressure significantly lowers the volume growth story of the technology sector," the report said.

Kotak has put HPCL in the top 10 stock list and included Oil and Natural Gas Corporation (ONGC) to its model portfolio. "We are adding HPCL noting commitment from the government to privatise it by strategic sale and ONGC for attractive valuation at current levels even under conservative crude oil prices assumptions," the report added.

Sanjay Panicker, an equity dealer with Darashaw Broking and Investment, says: "The shift is definitely taking place. It is expected that HPCL at a time of disinvestment will attract a price between Rs 500 and Rs 700 per share. This is nearly twice the current level price. Now, HPCL is one among the recommendation list of all research firms."

According SBI Caps officials, the expected decline in the crude oil prices in the coming years, strong free cash flow generation, strong portfolio of mature and new assets have made ONGC more attractive. "The company has 37 of the 70 blocks awarded under the new exploration and licensing policy. The crude volumes of the company are also likely to increase from the recent overseas acquisition."