Infosys Technologies: Buy

Investors with an appetite for risk may consider an exposure in small lots in the Infosys Technologies stock. The stock is trading at a multiple of 31 times its projected FY07 per-share earnings and 25 times its likely FY08 earnings (assuming a 30 per cent growth rate).

As the stock has run up by nearly 10 per cent since its earnings announcement, investors need to temper their return expectations to 10-15 per cent over a one-year perspective. Moreover, as a key Sensex constituent, with a significant weightage, the stock's appreciation is likely to be far more sedate than over the past few months.

We have `buy' recommendations outstanding on this stock at Rs 1,400 in mid-June and Rs 1,650 in mid-July. As growth stocks such as Infosys have low tolerance for earnings disappointment, investors with exposure at considerably lower price levels can use every uptrend to lock into gains on part of their holdings. A strong mid-teen growth in revenues and earnings for two consecutive quarters, all-round improvement in operational metrics and an upward revision in financial guidance for FY07 sustain its reputation as one of the better picks among frontline technology stocks.

Robust revenue growth from both its top client and those in the top five, strong increase in the number of clients across the entire order pipeline between $5 million and $50 million and offshore billing rates perking up by 1.1 per cent after a flat trend seen in the past five quarters are all pointing towards a blockbuster year.

Strong growth across all verticals, especially financial services and telecom; sharp rise in contributions from service offerings such as package implementation, testing, consulting and business process management; double-digit growth across geographies; and record employee additions in the latest quarter also bolster the positive outlook.

The risks to our recommendation are an unexpectedly sharp slowdown in the US affecting offshoring by its top-10 clients, competitive threat from multinationals such as IBM and Accenture, sustaining its growth in new service offerings and a strong appreciation in the rupee against the dollar in the coming months.