Which is better TCS or Cognizant

Asian Equities: Take advantage of market weakness to enter high-growth companies

"China's financial system is often reminiscent of the famous Churchill aphorism about Russia: 'It is a riddle within a secret, surrounded by a mystery.' There are few signs of where the market is headed," said Richard Jones, portfolio manager at First State Stewart Asia. “Like America, China is so big that you can always find stories or evidence that confirm both diverse and sometimes contradicting economic views. The fear of a review is already commonplace. The likelihood is therefore very high that we will actually see a significant and long-lasting economic downturn. There is only a very small margin of safety in the system, regardless of whether it is viewed top-down or bottom-up. In our opinion, the economic situation is relatively calm. Overall earnings per share growth in Asia is actually better than expected. However, we have the impression that the 'macro plates' are shifting. We therefore currently take the position that the bull market, which has been quite long since 2008, is increasingly exhausted

We have recently used the ongoing market weakness to invest in high-growth companies - particularly in India. For example, we acquired shares in Cognizant Technology. While the group is listed in the US, it is an Asian company. Cognizant offers IT services and competes with Tata Consultancy Services (TCS) and Infosys. As with other IT companies, the lack of spending in the banking sector has also hurt Cognizant's revenue growth. Financial services make up 40 percent of sales. In particular, the group's short-term growth was dampened by a number of European bank customers who relocated some business and are now backing them up in-house. Such developments are largely deflationary. In our view, however, they are only short-term in nature. The longer-term drivers of digitization, on the other hand, provide a strong structural tailwind for the industry and the company. Banks and insurance companies spend around 5 to 6 percent of their turnover on technology, while the company average is only 1 to 2 percent. We therefore currently estimate the longer-term growth opportunities to be quite large. Cognizant also has a strong presence in the healthcare sector - a sector that relies on extensive digitization. It accounts for 30 percent of sales. In addition, the group has made a public commitment to increase margins. We have already seen positive business development driven by the digital transformation at Indian TCS. We believe that TCS makes the best use of market opportunities compared to its competitors. This is shown, for example, by the $ 1 billion deals concluded with Marks & Spencer or Transamerica. In the last twelve months, TCS has developed into one of our largest holdings. "

Views for a bull market

  • Despite the current market weakness in Asia, bottom-up investors with longer-term exposure still have investment opportunities.
  • In the event of a downward correction, we currently expect the earnings growth of Asian companies for 2018/2019 to be in the low double-digit range.

Views for a bear market

  • If the trade war between the USA and China continues for a longer period of time, we are currently anticipating weaker economic growth in China.
  • US interest rates are likely to rise, putting pressure on emerging market currencies.

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