Where would do the next set of trigger points come from?
The next trigger would certainly be the earning season which would kick start from almost the end of the second week of April when the IT major as well as the banking major results will be out. Till then, the bond yield and the forex and global scenario and the relapse of virus and increasing number of cases will hold sway. But most of it is already priced in as we have seen a good correction of 8-9%. The plus point is FIIs are still in a buy mode.
Another additional reason would be that the financial year end will get over by the middle of next week and probably that will trigger better inflows from HNIs as well as domestic investors in the new financial year. The recipe is right for buoyancy as the new financial year starts.
How are you exploring the disinvestment theme. A lot of initiatives have been taken by the government as they have hit the pedal on privatisation. Where are you hunting for opportunity here?
The government has shown a positive attitude after a prolonged silence on privatisation. There is no business to be in business and they are consolidating the core focus and wherever there is any opportunity, they want to privatise it. Sectorally, everybody is waiting for the first trigger to happen successfully with BPCL. But there is cross holding in BPCL. It will take maybe two-three months more but once it is clear then we may see go for privatisation of Shipping Corporation of India. There is a lot of interest in rest of the names too,
IT will kick-start the earnings season. What are you pencilling in from both the large as well as the midcap IT stocks?
It would be a little early to say that but it seems that the growth prospects for midcap IT would be around 6-8%. Even for large cap IT names like TCS and Infosys and even HCL Tech as well as Tech Mahindra, the deal wins are substantially higher than last quarter’s. We are not comparing year-on-year. It is quarter-on-quarter. I expect that in dollar terms, their growth rate would be 4-5%. As for the bottom line, the way HCL Tech and TCS have given salary hikes, it shows that the earnings for the next two quarters will be very strong for these companies and the outlook will remain very high.
In the last to last quarter’s results, I was under the impression that the PE multiple has gone through the roof and hence it will not be a good opportunity to buy into IT stocks and better to book some profits. But it seems that the numbers have been delivered in very strong sequence. It will be a good opportunity for midcap IT from here.
Midcap IT can do wonders and the names I like are KPIT Technologies and Birla Soft. We have positions there. The other IT names are HCL Tech and Tech Mahindra. These are the four names in that pecking order. Among the largecaps, post buybacks, year after year it seems that the TCS growth story remains intact. It is a must-have in the portfolio for all the investors.
What about the cement trade? How are you looking at the overall dynamics with infrastructure picking up as well? With rising commodity prices, how do you expect the cement space to shape up?
These companies will grow due to the infrastructure development that has happened and orders that have been awarded in terms of commercial as well as residential and infrastructure related activities. There are very few cement players which can be beneficiaries. With a volume growth of 6-8%, among largecaps UltraTech Cement or ACC will be beneficiaries.
At the EV/EBITDA level, they are increasing EBITDA per ton and the realisation is improving on the dollar per ton basis. It seems that profitability is going to increase from here at least with 13-14% CAGR over the next two years.
The value unlocking will happen due to the additional cement capacity building by ACC. The stock has moved up by 5% on Monday and the same is the case with UltraTech which has gone for brown field expansion by acquiring more and more companies in the cement sector.
These are the names where the infrastructure activity should be better for them and the demand scenario is improving. I feel the cement sector as a whole has a very good outlook but it is kind of a passive investment. There will be returns year-on-year but from here, it seems that a passive investment would be better and ACC could be a turnaround story because of the discount it is quoting at and discounted from the peer category companies. That should now narrow down further. ACC should have better days ahead and could show underperformance in the coming quarters.
What about the Adani Group of names?
I would say that the Adani Group of Companies are way beyond their valuations and are out of anybody’s coverage area. It is very bad luck for those who have missed it and are not tracking it. I am not tracking the Adani Group of Companies.
