The Street seems to be believing that metals remain in a super cycle. Do you think it is a no-brainer to buy the dip in metal stocks?
I think most of the metal stocks are doing really well. It is a commodity rally that is shaping up quite well. It is not limited only to metals. You will find oil-related and even agri commodity-related stocks going up. I would rather call it a broad-based commodity rally. It is happening not just due to prices going up, but also because activity levels are getting boosted. There was little capex in the last few years. Now the ultilisation levels are up and that is really helping the commodity rally in a big way. I am sure it will continue for a few more months.
There is a renewed optimism in the IT pack after TCS management said they continue to be in a multi-year tech cycle.
What surprised us last year was IT companies trying to digitalise their revenue flows in a big way. We have not seen such deal wins. For the full year, the typical growth rate of deal wins would have been 4-7%, but it was about 14-15% or even 17% in same cases. That gives a lot of revenue visibility for most IT companies.
They have upped their EBITDA margins and EBIT margins quite substantially over the past couple of years. The upcoming year will be a good one for most of these IT companies. They have also done some capital restructuring in terms of buybacks, which helped in bringing greater EPS visibility and not just profit visibility. So I would share the optimism that the management has been talking about. I look forward to IT stocks outperforming the index by a wide margin.
Let me just bring one perspective about the IT index that has really surprised us in the past one year. I have never seen an double within a year in the recent past. It used to rally quite sharply more than a decade ago or so, but for the past one year it is one stock that has really given fantastic returns. And it is a frontline stock, mind you.
So from an outlook perspective, when we find that IT companies are upbeat in terms of their guidance and transformation, it gives us a great deal of confidence about where these companies can go. I am sure that while we may not see Infosys doubling again, but we will surely see Infosys riding the rally quite smartly. And I am not limiting my discussion to Infosys alone. You have the other largecap IT names also following suit. Wipro has also done phenomenally well in the past one year, if I were to single out any other IT company. And the opening up of the US economy should augur really well for most IT companies who are US facing. I would suggest investors to be overweight on the sector.
What is your take on platform companies?
Platform companies which are offering consumer-facing platforms are set to do well. You will have to be very careful. Are digital revenues adding to their existing revenue streams or are they just doing revenue cannibalisation? ICICI Securities is one such company which is perhaps doing cannibalisation of its own revenue stream. I would be very careful about such platform companies but the rest are really doing well.
