A few international brokerages have been coming out and saying that valuations perhaps a little bit overheated Goldman Sachs is the latest one. Indeed FIIs have been selling. So where do we stand right now? How are you reading things?
We can see that in this earnings quarter, companies are beating estimates on the top line and they are missing estimates as far as the margins are concerned and that is because input costs have risen sharply. Some of it is transitory because we have had huge supply chain disruptions over the last one year due to lockdowns. As things normalise slowly, these disruptions will also take time to come back.
Meanwhile, depending upon the sector, the margin hit has been between 3% and 10% or even sharper on certain other sectors. On the other hand, export driven companies — whether it is IT, pharma, chemicals etc. all have a very strong accelerating top line growth, including metals as that is also an export driven sector. While they have had margin pressures, the volumes have taken care of the top line.
As we go into the next quarter in the next year, costs will normalise. Every once in a while, a bit of a correction is expected but the medium term over the next six months-one year looks good.
What are you going to watch out for this week? Also, HNIs have subscribed to Latent View Analytics more than 800 times! What is going on there?
Latent is a data science company which is very new for the Indian market and it is a small size. That is another thing going in favour of the company because a lot of dollars and rupee is chasing a small company.
Data science as an area has been growing. Data is the new oil for the coming decades and the company has grown exceedingly well and managed its balance sheet very prudently. It is profitable, depending upon how one looks at it and they have also taken very little bit of external capital. When you add all this together — a small issue plus a well run company — it works. The issue will do really well and because the company’s prospects both medium, short term and long term look very strong.
What are your views on Paytm and Policybazaar? What are the cues to watch out for next week?
In the case of Paytm, 75% of their revenue comes from the transaction business, which is a low margin business. Yes they are expanding into a bunch of other things like selling mutual funds, insurance and gold even and this issue is going to fund the growth of adding new customers and adding new merchants and the company is also priced fairly right at the top. The issue has been well subscribed. It is a large business that will grow well.
Much has been said about the valuation run up in the tier two companies. After high returns, there was a big correction, followed by a mild recovery last week. What does it signal?
IT as a sector will do really well — both midcap and largecap companies. We are going through a super cycle for IT companies, innovation is happening at a phenomenally fast pace and the immediate trigger for the Indian IT companies is software as a service (SaaS). Cloud is another big thing as is communication. We are going to see a constant uptick of revenue upgrades. Focus on that more and less on the PE multiples. IT companies will support higher multiples in the next few years.
