Recently, Tata Consultancy Services (TCS) and Reliance Industries (RIL), hit a market capitalization of Rs 8 lakh crores. They have contributed majorly in Sensex’s run towards record high of 38,989.65 last month.
RIL has risen 38 %, while TCS has marked as much as 55% so far in this fiscal year 2018. Drops in the Indin value of the currency is acting favourably for stock. Also, TCS remains the leader in the IT space and RIL, there is a plenty of favourable air in terms of robust subscriber addition for Jio, strong performance from retail business as well as best pet-chem margins in the industry.
According to experts believe this is probably not the time to book your profits and holding them for higher returns would be the right strategy while owning both the stocks. However, the upside for TCS remains fairly limited when compared to RIL, suggest experts.
Siddharth Khemka, Head- Retail research, MOFSL told, “Both RIL and TCS have been major movers in the Index. While RIL was the first to cross the Rs 8 lakh-cr market cap mark, TCS was not far behind to cross the landmark level soon after. While TCS remains a strong market leader in the IT services business with strong growth, we believe that high valuations at 25x FY19 P/E leave little on the table from a 1-year perspective”.
“We have a Neutral Rating on TCS with a target price of Rs 1,950 from a one year view. Reliance Industries has reported strong June quarter numbers led by a superior pitcher performance in the standalone business, and robust RJio and retail performance in the consolidated business ”, he said.
Khemka hopes strong earnings growth for the next 2 years along with comfortable valuations. The brokerage house has a buy rating on Reliance Industries with a target price of Rs 1,477, which translates into an upside of above 15 % from Friday’s closing price of Rs 1,276.75.
Mayuresh Joshi – Fund Manager, Angel Broking also feels that the upside remains fairly limited for TCS, while the stock of RIL could see some more traction in value terms.
“RIL still has the best GRM in the refining space and one of the best pet-chem margins in the world. Also, the telecom space may see more value in terms of monetizing its ecosystem,” he said.
Sumeet Bagadia, Associate Director at Choice Broking shares a similar opinion. “We have a negative view on RIL with a sell rating. We believe that the current valuation is ahead of the fundamentals for RIL. We maintain a 12-month target of Rs 1,085 on the stock,” he said.
The rally could be fast and furious for RIL, but most experts feel that India’s largest oil & gas major will continue to win and hit levels closer to Rs 1,450-1,500 in the next 12 months. Both RIL and TCS offer terrible growth potential which is why the market is rewarding both the companies, suggest experts.
Foram Parekh, Fundamental Analyst – Equity, Indiabulls Ventures Ltd., “We continue to remain bullish on both the stocks despite the steep up-move. There is a similarity in both the stocks and that is — the ‘future growth prospects remain intact’. Both stocks expect very good earnings in the future,”
“Market is rewarding both the stocks on the factor of longevity. We feel Reliance will touch Rs 1,400- 1,500 levels in one year on account of good growth in the GRM and the Jio business. On account of rupee depreciation, we feel TCS will fetch good growth on the constant currency basis which will lead to a target price of Rs. 2,300 in one year,” she said.
TCS is well-positioned in the competitive landscape, especially in digital execution capability. This can be evidenced by the winning of its large deals in the recent quarters. As per experts suggests, the company is on track to achieve double-digit growth in FY19.
Both TCS and RIL are the well-known stocks. They might not offer multi-bagger returns from current levels in the next one year but could still give double-digit returns from current levels.
Gaurav Dua, Head of Research, Sharekhan by BNP Paribas told, “TCS superior digital execution capability along with an expected revival in BFSI vertical provides promising revenue visibility for FY2019/FY2020″.
“We believe that the stock would continue to trade at a premium to its peers given its superior digital execution capability and preferred partner for client’s digital transformation program. We maintain our Buy rating on the stock with a price target (PT) of Rs. 2,200,” he said.
For RIL, Gaurav Dua is positive on the earnings outlook as he expects a strong margin for refining and petrochemical business. We have Buy rating on RIL with a price target of Rs 1,465.