What is happening on the Nasdaq? Apple and Microsoft are already trading at a market caps in excess of $2 trillion and now Alphabet as well is catching up. It is not a pear to pear or an apple to apple comparison, but can we correlate between what is happening within the Indian IT firms and these global names? Will IT continue to be the mega compounding story which will augur good returns for investors?
You are talking about the increase in Apple and Google and Alphabet stock prices, just watch till the Indians have just not even landed there. The Indian investor has just about dipped his toe in the market. In the next two years, the bumpup in these stocks is not going to come from the US alone, it is going to come from India and the rest of the world who have started to feel they had been left out in the rally on the biggest stocks.
So very clearly there is a huge traction on the buy side for all these stocks from global investors and Indians in particular. These stocks have got enormous value in terms of the demand and number two, none of these stocks issue equity. They mostly do buybacks and so the supply is also not increasing in the market. You can imagine when 200 million Indians suddenly start to invest in Apple, what is going to happen to this stock!
The Indian IT industry in fact has gone through a little wall of worry. This industry was totally ignored by most investors at this point, one year back. It is only people like Aberdeen, etc, who were holding IT stocks for I think 20 years or more. So, a re-rating happened because people decided to move to IT in the last six months.
The market can go wherever it wants but these stocks have the ability to keep bouncing back. They operate in the best global market of the world which is the United States and therefore the US growth rate is critical to them. Most of them operate in two or three sectors — banking, etc, which has kind of been the bulwark of keeping them going.
So the parameters are US growth, IT investors and the fact that in a way they are almost mimicking the consumer companies with regular growth and regular income. This traction will continue. Having said that, in the next 12 months or so, they will face a little bit of a trough because of the way rupee-dollar is behaving. It is not going to give them the 3.5% depreciation. The rupee went to 75, back to 72.5, back to 73 and that variation is going to take away a lot of profitability from these companies.
People who are entering are going into a little more volatile period for the IT stocks, unlike an Apple or Alphabet which do not have this volatility on their books. Indian IT companies have had rupee-dollar as the saviour for the last 15 years. Now if that does not become the saviour for the next five-seven years or two years at least in a short term, the volatility in prices would come and we will see underperformance of this sector. We believe that in the next 12 months, IT will underperform the rest of the market.
So where else can we see this kind of a large disruption play out? We have seen a big move in the real estate pack– everything from realty demand to ancillaries of building materials, home improvement sector have seen a big boom.
Developers have never had it better than this for the simple reason that now there are only eight to ten developers in the market whom people trust with their money, given what has happened to the rest of the developers. Therefore they are enjoying a boom. Also they are able to offload their commercial spaces and that has changed the dynamics.
We saw what happened to Prestige; they offloaded the entire portfolio out, got the liquidity and can use the liquidity to start 10 new projects. This has changed the dynamics for most of the real estate players. I keep saying that every single growth economy in the world –whether it is Singapore or Hong Kong, have real estate companies as a large component of their indices at one point of time. India has not seen it. Perhaps India will see it now when the top four or five developers will offer a multibagger investment opportunity even from this level. It is very visible but there is also a lot of scepticism.
I think these two industries will get re-rated in investors mind and will acquire traction and offer the best multibagger opportunities. They should outperform everybody else in the market.
