What do you make of today’s up move in ITC?
ITC had been one of the only stocks in the consumer side which was left unmoved. In fact, over the last couple of months, while most of the other consumer stocks moved up 15%-20%, ITC was lagging behind. So a catch up is happening that was overdue because ITC is a stock where you can justify the valuations at Rs 200, Rs 250, Rs 300 and even Rs 350.
Now it depends on how the market wants to rerate, how investors want to play it and how the market traders take it out. My guess is that there should be more upside in the stock given the overall valuation paradigm in the market and ITC valuations relative to the overall market.
Seeing the way the consumer stocks have been moving up, which ones would you buy in this market?
I will not buy anything because except for ITC which we bought at Rs 210 odd levels. Maybe something like Dabur might still have some value but beyond that, many of these stocks — be it a Titan or Jubilant Food or others — are trading at 100 times FY24 earnings! These valuations were not seen even during the technology bubble when stocks like went to a 100 PE but there was a valuation correction which is imminent now. Buying at these valuations, how people think they will make money is totally beyond me.
We have been talking about the shift towards the tier one IT companies. Look at . It is Rs 4,674 right now, up by more than Rs 300. What do you make of the 7% move? This is a stock that has already given a 160% return year to date.
The Mindtree earnings beat was quite substantial and on most parameters they did very well. There is volume traction with top line tractions and given the higher costs, are getting absorbed especially in the technology business at this stage. Now there is some apprehension that going forward next year, the growth in the US might actually be slower than what has been currently anticipated, which is also getting somewhat reflected in the US markets right now.
In that context and given the wage inflation in the US, will the margins hold on in the future? I would think that a large part of good results has already been built into the stock prices. Infosys upgraded their guidance. Their score card was positive but the stock did not move much. So specifically for the technology sector, I would think that a large part of the gains are already in the prices. They will need to do substantially better than what the market is expecting and that is going to be tough.
Where is the next alpha generation going to come from? Will it be those unheard of bottom-up stories or are the leaders going to take the market’s next leap forward?
Markets have made so many leaps that I do not know what the next leap forward is whether it forms the upside or downside. It is tough to give valuations when the markets are too high. We see some value in some of the midcap construction companies etc. which have not moved at all despite the move in the real estate side. That is where I see some amount of value.
There are also some midcaps here and there, which might have value but the overall midcap index has gone up substantially. I am not sure where the next round of alpha will come from in the immediate term. The next round of alpha could actually come from holding cash.
