Tata Elxsi may appreciate by 50%

Despite a rout in Wall Street, the Indian stock markets shrugged off any concerns by posting a 732-point rally on Friday to post the biggest one-day gain in 29 months and close the week at 34,733. The markets had gone loco during the week by trading on huge volatility in both directions. Surging crude oil prices are throwing the Indian economy out of gear as energy is an important factor for us. With crude oil prices at four-year highs, the global oil market is currently termed as “emotionally imbalanced”. With the Donald Trump administration determined to push down Iranian exports, the oil sanctions in November will be crucial for India and its economy. Currently, there is no oil supply shortage in the global markets but supply chains are being disrupted by oil producing countries due to the impending Iran sanctions. Our stock market view remains cautious in the short-term due to the rupee volatility, surging crude oil prices, stretched valuations and rising current account deficit. Equity investors should brace for more downgrades in the September 2018 quarterly earnings’ season, starting this week. We feel that the Nifty may decline and touch the 10,000-mark by mid-November.

On a fundamental basis, we feel that Tata Elxsi is a good stock to invest in for portfolio investment in the tech space. India is one of the top destinations for IT companies delivering both on shore and offshore services to global clients. An entire gamut of new technologies has emerged in the social, mobility, analytics and cloud (SMAC) space, offering a whopping US$1 trillion opportunity for Indian IT companies. Cloud represents the largest opportunity followed by social media as one of the most lucrative segments witnessing extremely strong growth. The engineering research and development sector continues to be the fastest growing segment, driven by demand from global original equipment manufacturers. India has a rich digital ecosystem of start-ups, technology and service providers. Leading names like Flipkart, SnapDeal, MakemyTrip, Ola etc., have expanded the Indian ecosystem and this has thrown the door wide open for employees of these companies to start their own enterprises. IT spending by security and banking companies is also one of the segments expected to grow by over 9% in the next few years. Tata Elxsi is one of the leading providers of design and technology services for engineering products and solutions across the world. The company provides technology consulting, new product designs and solutions for emerging technologies such as cloud, big data analytics, mobility, virtual reality and artificial intelligence. Despite challenges, Tata Elxsi reported year on year growth of 15% in overall revenue and improvement in margins. Most analysts and fund managers expect the company to post over 20% revenue and 17% PAT over the next few years. The Tata Elxsi stock, currently quoting at Rs 972, is an attractive investment buy for an 18-month timeframe for a 50% price appreciation.

Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.