Where within midcap IT are you finding comfort to even stay put or may be add on to declines assuming that you are a still long term believer in the Indian IT story or largecaps and have added to that pool?
I firmly remain in the camp of strongly believing in the strong growth prospects for the Indian IT services company over the next five to 10 years because I think the whole world needs to digitise and Fortune 500 companies globally are accelerating their spends on digitisation and that will benefit Indian IT companies.
We like the five largecap companies in the IT sector and we think that though valuations there have moved up a bit, they are still reasonable in the context of growth they are likely to deliver over the next three to five years. When it comes to midcaps, we are taking a more stock specific approach and we like companies which have very strong execution capabilities and which have strong portfolio of services and which are focussed on the new generation services around digital cloud and analytics.
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That is where we are seeing a huge demand from the customers in US and Europe and there is a huge shortage of talent as far as IT services are concerned when it comes to some of these new service capabilities. From a midcap IT services basket, we like companies which have capabilities to execute projects around digital AI and machine learning and companies which have the talent pool or which can make up for that so that they can capture the growth that lies ahead. So, we are slightly more selective when it comes to midcap IT companies.
Do you think it was bound to be a rocky week? We have got expiry domestically and then of course there are the taper tantrum expectations on a global level and there is some disappointment in the Street with regards to the three farm laws which got repealed because many are raising question marks on what is going to happen to the future reform course given disinvestment?
I agree that this is an expiry week and it has been noisy over the last few weeks and there has been some disappointment with some IPOs and at the valuation at which they have been done. As far as the farm laws reversals are concerned and the future course of reforms are concerned, I do not see any risk to that because the government is very steadfast in its resolve to execute reforms and maintain the reforms momentum because that is very important for revival of growth and for improvement of government finances. We live in an environment where the government has expanded its balance sheet very significantly after the onset of Covid. The government at some point of time will have to embark on the path of fiscal consolidation.
The government is very keen on a very strong revival in the economy and I do not see a risk to future economic reforms. As far as farm laws are concerned, all of us know that it was always tricky for India in the last 50 years when we dealt with farmers and then it gets into issues around vote banks and politics. So I would leave it there.
As far as the markets are concerned, for the last few months, we have been experiencing a very high order of retail euphoria. One of the most striking incidents which I witnessed a few weeks back was when I found a vegetable vendor who was trading in stocks. We have got to a stage where everyone has started dabbling in stocks and it has reached some sort of a frenzy. A correction was in the making or was anticipated at some point of time and now that we really have it, given the fact that the rally preceding this correction has been very furious and very steep, the correction was bound to be a bit more sharper, which is what exactly we are witnessing.
I still do not think that changes the long term force of the bull market. I firmly believe that we are very much in a very strong long term bull market and this is nothing but a correction in that.
There was euphoria within the IPO market. Nykaa was a standalone case but many eyebrows were raised when we had a very lukewarm response to the Paytm IPO. The valuation was a big concern. The way it listed and the kind of fall it has had even in today’s trading session, many believe that Paytm actually called the near term top as well for the market. Do you think a similar frenzy is also playing out in the IPO market?
Absolutely. There is a huge amount of frenzy in the IPO market. There is no denying the fact but this is very typical of any strong bull market because this is what exactly we see. Look back to any of the bull markets like the technology bull market of 2000 or the 2007 bull market which peaked out in 2008 with the Reliance Power IPO. Every bull market reaches a stage where we see a huge amount of IPOs being done and a huge amount of capital being raised through them. Some of these companies probably get priced very expensively in the IPO market and which is where the retail investors end up making some losses.
So while I firmly agree that there is a huge amount of frenzy there, I think it is part and parcel of the overall cycles of the markets. From a retail investors perspective, I would strongly urge the retail investor to use mutual funds or take some professional advice because India has a very well developed mutual fund industry and probably use some professional expertise to create wealth because trade in stocks can be profitable from a short term perspective especially in a bull market but this is not always how markets are and they can be tricky at times.
I would advise retail investors to take some professional help to manage their portfolios.
