came out with an announcement that we would see the American depository receipts (ADRs) listed on Wall Street. What kind of rub-off effect can this news have on the midcap or the tier-2 IT companies?
One good aspect about the mid tier IT companies is that they are forming their niches and are operating in different areas. Also the digital first movement across the globe is helping some of these companies. Companies like Tata Elxsi, Cyient Technologies and L&T Technologies are similar companies that are operating in this space, in different verticals and that is very important.
When these mid-tier companies have a significant amount of specialisation, they can get better valuations and that is what we have been observing. Would these valuations sustain? The answer is yes as long as the growth continues. In many cases in the last quarterly results that we have seen, the growth rate has been between 25% and 30%. If these companies continue to grow at a 25-30% rate of growth, then going forward, the scenario could be quite significant, something that we saw between 1990 and 2010 for most of the frontline IT companies. A similar scenario is emerging for the mid tier IT companies at this point of time.
I am not too sure about Coforge at this point of time since we do not have the company under coverage, but I would like to believe that the fundamental prospects are shaping up well for even this company. I would like to think that mid tier IT companies are going to have relatively higher sustenance as far as their growth is concerned going forward.
Cipla has announced that it is going to be selected in the S&P Dow Jones sustainability index with the emerging markets for 2021. There are 108 companies in this from the emerging market and Cipla has been included. Can this help as far as flows to a stock goes?
Yes undoubtedly. The companies which are getting included into the major indices would benefit. When we see the allocation pattern by respective funds the funds would definitely allocate a part of the money when the stock is included in the indices and that is where there will be a scope of rerating some of these stocks. The perception of the stock could improve and they would probably start quoting at a premium valuation. So I am happy that this kind of move has happened for Cipla and would look out for many such kinds of possibilities because many of the Indian companies are now entering into the big league where they are making a compelling proposition for getting included into some of the larger indices.
We hold very good chances as far as improvement in our rating, improvement in valuation and most importantly, sustenance of this valuation is concerned. So definitely it is good news to look out for.
