In times of crack in the market, defensives come back to the fore. IT would continue to find favour at a time when pharma is really not the most favoured sector. Are all the funds going to gravitate towards IT?
What is happening is some of the midcap IT companies are delivering very strong performances — be it Mindtree, be it LTI, be it LTTS and there is an expectation that even some of the other companies which are yet to announce numbers, will have an element of positive surprise. That is probably driving up the stocks.
Our feeling is that yes the midcap as a segment is doing very well but at some point — the valuation gap between the large cap and midcap people would raise some issues. How much can one give to a midcap company given the growth profile that they are talking about? So for incremental investment, we are far more comfortable putting money into Infosys and to some extent HCL Tech. There was a disappointment but we do find the valuations far more compelling and to be selective with the midcap IT names. Cyient or Zensar or Mphasis BFL are the names that we are comfortable buying into, but the kind of valuations and premium at which the midcap ITs are trading is a bit of a caution at this point of time.
If there is a broad based correction, where would you be a buyer? Would you venture into any of these high beta names or would you be safe and buy IT?
There are a bunch of companies that we have on our radar — whether it is from the auto space and more importantly the discretionary consumption and the entire narrative around this travel and tourism and retail space where we are expecting far better growth versus the typical consumer led names.
I think that one should be a little more guarded about what one gets into. Particularly the companies where the quarterly numbers are good where we are seeing a better growth commentary like Titan or some of the private sector banks like HDFC Bank or ICICI Bank or some of the auto names like Maruti. These are the names one could be comfortable buying into if there is a meaningful correction in the market.
Yesterday’s intraday move has got a lot of market men wondering. Are you also wondering what it means?
We saw sharp correction in – IRCTC, IEX, Tata Power and maybe few other midcap names. In any bull market, there are certain pockets which are the leaders or where there is a fancy and there is a lot of momentum based activity. In today’s market, these are the names where there is a fair bit of retail participation, a fair bit of HNI and maybe hedge fund participation also. So it is normal to go through a bit of a corrective phase.
The market cap for IRCTC is Rs 80,000 plus crore for IRCTC, and Rs 25,000 crore for IEX. So, we go through these kind of corrections. One has to be a little more selective about what to get into if there are corrections. We are not too perturbed abou Tata Power. The entire story around renewable energy is catching up globally. So one can participate if there is a meaningful correction of 10-15%. So I am not too perturbed by the correction we saw yesterday.
What is happening in L&T twins? Why are markets re-rating these two stocks?
Both LTTI and LTTS have delivered market-beating performances. The commentary which has come through post the announcement of the numbers is also quite positive. There is a broad-based performance across verticals and when we see upward revision in guidance, in today’s markets people really do not care much about valuations. People care much about what is the extent of the surprise that you are delivering and whether we are going to see any meaningful upgrades over the next one year.
It is a theme that people would like to participate in. We do think that the valuations are higher but in today’s market, people are willing to ignore that for a good quality franchise if there is growth visibility.
What about TTK Prestige?
There are certain companies — where either because of performance or because of the overall comfort that the investors have with a management — even when the midcaps or broader markets are correcting, these names remain quite firm. So that may be the case for a TTK Prestige because one is looking at very significant revival in both rural and the semi-urban markets and that is where probably TTK Prestige is fitting in.
Things are changing for the discretionary space. For example, we cover Titan, Jubilant Food and a whole host of other companies. People feel relative growth would be better for the discretionary consumption versus the normal consumer led revival. Maybe those are the factors that will be driving the prices for some of the names that we have discussed.
What is your outlook on IEX?
We started covering this stock at about Rs 180 and then there was history. It has become almost a 7-8 bagger in the last 12 to 15 months. Basically it is about the platform company and the most sought after theme is energy and renewable energy and the story around it. Which is why there is so much euphoria around IEX. We also have to bear in mind that for some of the companies like IEX, IRCTC, etc, the floating stock is limited.
Whenever we see some investors chasing these stocks, the momentum could be very high and a similar kind of thing can also happen at the time of correction. But as a concept, as a company we do like IEX. The only thing that we feel is that the way the stock has gone up, one should be little mindful of the valuations and not chase it aggressively.
