ONGC, Tech Mahindra: Top stock picks by Kotak Securities; here's why

Shrikant Chouhan, head of equity research at Kotak Securities, explains why the brokerage has assigned Buy ratings to ONGC and Tech Mahindra

Stock picks: Investment ideas by Kotak Securities

ONGC – Buy

CMP – ₹250

FV – ₹365

Resistance – ₹252-259

Support – ₹246-242

 

Maharatna ONGC is the largest crude oil and natural gas Company in India, contributing around 71 per cent to Indian domestic production.  ONGC has a unique distinction of being a company with in-house service capabilities in all areas of Exploration and Production of oil & gas and related oil-field services. 

 

ONGC Videsh Limited, a Miniratna, is the wholly owned subsidiary and overseas arm of ONGC, the flagship national oil company (NOC) of India. The primary business of ONGC Videsh is to prospect for oil and gas acreages outside India, including exploration, development, and production of oil and gas. ONGC Videsh owns Participating Interests in 35 oil and gas assets in 15 countries and produced about 30.3% of oil and 23.7% of oil and natural gas of India’s domestic production. In terms of reserves and production, ONGC Videsh is the second-largest petroleum company of India, next only to its parent ONGC.

 

 

ONGC subsidiary Mangalore Refinery and Petrochemicals Limited (MRPL) is a schedule ‘A’ Miniratna, Central Public Sector Enterprise (CPSE) under the Ministry of Petroleum & Natural Gas. 

 

ONGC subsidiary HPCL is a Maharatna CPSE. HPCL has the second largest share of product pipelines in India with a pipeline network of more than 3370 kms for transportation of petroleum products and a vast marketing network

 

The extension of BP’s partnership for the entire Western reforms, recent reforms to ensure fiscal stability, and rising NWG (New Well Gas) production are key positives.

 

ONGC’s FY27E earnings are moderate, but its outlook remains constructive.

 

The sharp correction in the stock price offers a compelling entry opportunity.

 

We revert to a crude oil price assumption of $85/bbl (from $95/bbl) for FY27E, while maintaining $75/bbl (barrels) for FY28/29E and long term.

 

ONGC's earnings are sensitive to oil & gas prices and exchange rate assumptions.

 

ONGC remains our top pick.

 

We have valued the standalone business at a PE of 7x on June 2028 earnings.

 

Tech Mahindra – Buy

CMP – ₹1,577

FV – ₹1,750

Resistance – ₹1,640-1,680

Support – ₹1545-1,505

 

Tech Mahindra has successfully transitioned from a turnaround candidate to one of the strongest growth opportunities within the Indian IT services sector. The company has consistently executed on its strategic priorities, delivering improved growth, expanding margins, and industry-leading deal wins. As a result, we expect Tech Mahindra to outpace large-cap IT peers in FY27E, with further acceleration in FY28E.

 

Why we like Tech Mahindra

 

Strongest deal pipeline among large-cap IT companies

 

Tech Mahindra continues to build one of the healthiest order books in the industry. The company reported Total Contract Value (TCV) of US$1.08 billion, marking the third consecutive quarter with bookings exceeding US$1 billion.

 

Importantly, these bookings are broad-based rather than dependent on a single mega contract, reflecting healthy demand across multiple industries, particularly manufacturing and healthcare. The addition of seven new US$50 million-plus clients over the past year further strengthens future revenue visibility and provides confidence that growth momentum can be sustained.

 

Positioned to deliver industry-leading revenue growth

 

Tech Mahindra has already begun outperforming the peer group on revenue growth, supported by strong deal conversion and improving execution.

 

While the telecom business continues to benefit from large transformation programs, management has simultaneously strengthened the enterprise business, creating multiple growth engines across manufacturing, healthcare, BFSI and other verticals. This diversification significantly reduces dependence on any single sector and enhances the sustainability of future growth.

 

We expect Tech Mahindra to grow comfortably ahead of large-cap peers in FY2027E, with growth accelerating further in FY2028E as recently won deals progressively contribute to revenue.

 

A turnaround that has delivered on its promises

 

Over the past year, management has consistently executed against the milestones it laid out. What was once viewed as an ambitious turnaround plan has now become operational reality.

 

Revenue growth has improved, operational execution has strengthened, margins continue to expand, and client additions remain robust. The debate has therefore shifted from whether the turnaround will succeed to how long Tech Mahindra can sustain above-industry growth—a significantly more favourable position for long-term investors.

 

Profitable growth over volume growth

 

One of Tech Mahindra's biggest competitive strengths is its disciplined approach to deal selection.

 

Rather than chasing revenue at any cost, management has consciously declined large contracts that required unrealistic pricing or aggressive productivity commitments. This disciplined bidding strategy has enabled the company to win business at healthier margins while protecting long-term profitability.

 

Unlike several peers that have experienced margin pressure after winning low-priced deals, Tech Mahindra has steadily expanded operating margins, demonstrating that its growth is both profitable and sustainable.

 

Margin expansion has further runway

 

Management remains focused on improving the quality of revenue rather than simply increasing scale. The company's emphasis on higher-value digital transformation, AI-led services, and operational efficiencies is expected to drive further margin expansion over the medium term.

 

This disciplined capital allocation and execution framework should translate into stronger earnings growth, improving return ratios and higher free cash flow generation.  ===================================== 

(Disclaimer: This article is by Shrikant Chouhan, Head of Equity Research, Kotak Securities. Views expressed are his own.)