The US dollar index has entered three digits after a gap of two years as the Fed's hawkish tone - in its bid to tame inflation - continues to support the greenback. Back home, the rupee is about half a percent off its weakest ever -- a level of 76.96 hit in March. Depreciation in the rupee boosts the profitability for Indian exporters such as software and drug makers. Analysts share their top picks to make the most of the favourable demand environment for both businesses now.
Motilal Oswal Financial Services AVP-Research, Broking and Distribution Sneha Poddar remain positive on the good demand environment and sustainable double-digit revenue growth in the IT sector over the medium term. "We see continued strength in demand, led by increased deals on a full-scale digital transformation, upward price revisions and higher spends on Cloud migration by large corporates," she tells CNBCTV18.com.
Poddar expects Infosys to deliver a top quartile growth, backed by strong deal wins and price revision.
Her other IT pick is HCL Tech. She is of the view the company is one of the key beneficiaries of Cloud adoption at scale given its expertise in information management systems (IMS).
Angel One has set a target of Rs 1,466 for the stock and believes the company provides a vast gamut of services like application data management (ADM), Enterprise solutions and IMS.
"Strong deal wins should help drive growth in the services business which should make up for any shortfall in the product business due to the delays in deal signing. At CMP, the stock is trading at a price-to-earnings multiple of 21.5 times its FY23 EPS estimate, which is at a significant discount to the other large-cap companies like Infosys and TCS, and offers tremendous value at current levels, the brokerage told CNBCTV18.com.
Geojit Financial Services Head of Research Vinod Nair prefers Tech Mahindra from the pack, given the company’s capabilities in the 5G and communications vertical. "We believe the company will take advantage of the transformation trends in this vertical. It is well-positioned to leverage dollar appreciation as a significant portion of revenue comes from the western world," he says.
AK Prabhakar, Head of Research at IDBI Capital Markets, has Zensar Tech as his top pick from the midcap IT space. Among the blue-chip scrips, he likes Infosys and TCS.
Ashika Stock Broking Head of Research Ahutosh Mishra has three picks from the space: TCS, Persistent Systems and KPIT Tech. He sees a growing export opportunity for IT companies, set to benefit from rupee depreciation. India's pole position in IT as well as pharma is a key driver, according to Mishra.
Motilal Oswal Financial Services' Poddar believes the outlook for the domestic formulation segment in the pharma sector is gradually improving with reduced COVID-led restrictions and a further boost in the form of a 10.7 percent price hike expected in the National List of Essential Medicine (NLEM) drugs from the financial year ending March 2023. "The pace of ANDA approvals is gradually picking up after the easing of the pandemic situation," she adds.
Poddar likes Divi's Labs from the pharma space. She expects continued traction in CRAMS and increased capacity utilisation to drive strong earnings growth of 50 percent on a year-on-year basis for the drug maker in the January-March period.
She is of the view the execution in the specialty portfolio and the outperformance in branded generics are likely to propel earnings growth of 22 percent on-year for Sun Pharma in the January-March period.
IDBI Capital's Prabhakar has Gland Pharma as his top pharma pick. He is positive on the company's sizable export portfolio to the US. He also likes Sun Pharma.
Ashika Stock Broking's Mishra has four picks from the pharma basket: Sun Pharma, Laurus Labs, Biocon and Natco Pharma.