Sebi brings framework for foreign investment in Alternative Investment Funds Markets regulator Sebi on Friday came out with a framework for alternative investment funds (AIFs) raising capital from foreign investors.At the time of on-boarding investors, the manager of an AIF would have to ensure that the foreign investor is a resident of a country whose securities market regulator is a signatory to the International Organization of Securities Commission’s (IOSCO) Multilateral Memorandum of Understanding or a signatory to a bilateral Memorandum of Understanding with Sebi. “AIFs may accept commitment from an investor being Government or Government related investor, who does not meet the aforesaid condition, if the investor is a resident in the country as may be approved by the Government of India,” the Securities and Exchange Board of India (Sebi) said in a circular.Further, the investor contributing 25 per cent or more in the corpus should not be a person mentioned in the Sanctions List notified by the United Nations Security Council and should not be a resident in a country identified in the public statement of the Financial Action Task Force (FATF). The investor should also not be from a country that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with FATF to address such deficiencies.In case an investor who has been on-boarded to a scheme of an AIF subsequently does not meet the specified conditions, the manager of the AIF will not drawdown any further capital contribution from such investor for making investment, until the investor again meets the conditions.The same would also apply to investors already on-boarded to existing schemes of AIFs who do not meet specified conditions, Sebi said.The new guidelines would come into force with immediate effect. Under the rules, AIFs may raise funds from any investor, whether Indian, foreign or non-resident Indians, by way of issue of units.AIFs are funds established or incorporated in India for the purpose of pooling in capital from Indian and foreign investors for investing as per a pre-decided policy.
Services miss estimates; Software better than expected: Services business grew 0.6% q-o-q cc and missed HCLT’s Q3FY23 guidance, mainly due to a 3.8% q-o-q cc decline in the ER&D segment. Growth in the IT&BS segment moderated slightly to 1.6% q-o-qcc but was in line with estimates. BFSI and Life Sciences were the key growth drivers, while communications were the drag among verticals. Growth was led by the Americas region, while Europe and ROW posted declines.
Decline in bookings reflects delays in decision-making: HCLT won 10 large deals in services and three large deals in Software with net-new deal TCV of $2.1bn, down 8% y-o-y. Deal wins were driven by the services portfolio, were centered on cost optimisation and vendor consolidation and came mainly from BFSI, manufacturing and Life Sciences verticals. Management highlighted a ramp-down in discretionary spending in Hitech and communications verticals but pointed to a strong deal pipeline.
FY24 guidance in line with expectations: HCLT has guided for 6-8% y-o-y growth for overall business and 6.5-8.5% y-o-y cc growth in services segment and 18-19% margins in FY24—all in line with our assumptions. We maintain our FY24-25 cc revenue growth and margin estimates and expect HCLT to deliver 6.5% cc revenue growth and 18.4% margins in FY24. However, we lower our earnings forecasts by 2% to factor the higher tax rate indicated by the management.
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Raise PT: HCLT has fared better in Q4, particularly in North America and BFSI, unlike its peers. However, rising demand uncertainty as a US recession nears remains a concern. HCLT’s stock at CMP trades at 17x PE and offers a 5% yield, which in our view should limit downsides and derating. Hence, we raise our target PE to 17x (16x earlier) and raise our PT to Rs 1,125, offering 8% potential upside.