Why did technology stocks went through the roof last week? These stocks were expensive but the price action in midcap IT stocks like Mindtree, LTIS and LTI was unbelievable.
There has been a divergence in performance of largecap and midcap IT stocks post results. Largecap IT is more or less stagnated. In the case of TCS, we have seen some correction post results as there is some concern on margins. In midcap IT companies, the business traction is taking care of margin pressures which are lower than that of Infosys and TCS. So I think the operating leverage story is playing out. Many of these stocks are relatively under-owned and illiquid and so a small amount of buying creates a positive move. That said, the growth outlook is positive. Margin outlook for many of these companies could sustain but also come under slight pressure going forward. After these moves, the valuations are at least 50% to 70% higher than historical ranges. So the long-term growth story remains intact but valuation has become a concern.
What is your take on the marriage between Jio Platforms and Just Dial’s data base?
If we compare Just Dial vis-à-vis other new generation companies, the valuation is still much lower. Reliance has not been able to make any headway over the last one year. There was a huge hype a year ago but now none of that seems to be playing out. So I think they are trying to go through the inorganic route. It is a work in progress. We need to see how it goes. Although one might say that they have allowed the companies to operate independently, but most of these companies which they have acquired have not actually done exceptionally well also post acquisition. We need to give it time. It is very tough to make a prediction.
You bought into Indian Hotels and it has done well. Is the unlock trade over now and the stock price has now normalised?
It has normalised. Now it will depend on performance. As things go forward, the reopening trade is benefitting the bigger brands more. Many of these companies have cut their costs significantly because of the Covid wave. To that extent, they are ready to leverage growth and have better profitability when growth comes back. So on the question of whether the bounce back because of the reopening story has played out, I would say yes. Whether the stock can go higher over the next 2-3 years, I would say yes to that also. For that, we will be looking at how they perform. So now it is more of a performance-based trade rather than reopening trade.
