Shares of IT bellwether Infosys fell 14 percent in October after the whistleblower complaint alleging misdemeanors by the company's CEO and CFO. While most brokerages have remained cautious post this, Edelweiss Securities has increased the stock's weightage in their IT model portfolio from 15 percent earlier to 27 percent.

Edelweiss reiterated their faith in the Infosys' fundamentals and said that it is well on course to outclass the industry.

"The knee-jerk correction in the stock price implies that it now trades at a mouth-watering 16.5 times its FY20 EPS estimate, thereby widening its discount to TCS (which has a similar growth profile) to 35 percent from 19 percent earlier," noted the brokerage. It also maintains ‘buy’ on the stock with a target price of Rs 955, implying 20 times its Q4FY21 EPS estimate.

However, research firm Jefferies said multiple whistleblower allegations were particularly related to large deals and the letter alleged that many of them had negligible margins. It added that the issue was likely to remain an overhang on the stock in the near term.

While Credit Suisse also said the allegations could lead to a lot of uncertainty and the nature of accusations was serious. If proven, this could lead to the CEO and CFO being fired with potential SEC investigations, it said.

For the sector on a whole, the brokerage maintains that a cyclical upturn in

the margin profile of several IT midcaps is underway and hence remains bullish on certain mid-caps given their strong re-rating potential.

On the flip side, they explained that the sharp run-up and the consequent expensive valuations of large-cap IT stocks, which already factor in double-digit dollar revenue growth expectations for IT majors Infosys and TCS, compelled them to mark down their weightings in their last update while assigning a higher weighting to HCL Tech.

Recent developments at Infosys and margin discomfort with Tech Mahindra present another opportunity to re-adjust their portfolio allocation, they added. While the brokerage raised Infosys' weight, they pruned Tech Mahindra’s weighting from 15 percent to 8 percent.

"Enthused by the resurgent performance in its communications vertical, Tech Mahindra commanded a 15 percent weighting in our model portfolio. However, the ramp-ups in recent large deal-wins should lead to upfront costs that would pressure margins in the near term. This coupled with a flat enterprise business may drag the stock in the short run. Hence, we are cutting its weighting in our portfolio to 8 percent," the report said.

The other constituents of the IT model portfolio are TCS (10 percent Weightage), HCL Tech (15 percent weightage), L&T Infotech (10 percent weightage), L&T Technology Services (7.5 percent weightage), Persistent Systems (5 percent weightage), MindTree (7.5 percent weightage, etc.

The brokerage maintained ‘buy’ on Infosys, HCL Tech and Tech Mahindra, and ‘hold’ on TCS and Wipro. In mid-caps, the brokerage retained ‘buy’ on L&T Infotech, Mindtree and L&T Technology Services, and ‘hold’ on Hexaware.

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