Let us talk about the IT sector. No doubt, last week, the sector was majorly in focus given that the Q2 earnings of major companies – , , , – were declared. Where is the IT sector headed from here? Because, the sector did have a good ride on Friday based on the numbers coming in from these heavyweights.
I think the biggest challenge we have been facing is that there is too much noise. If we carefully look at it, there has been a 30% selloff in the IT index and the Nifty has fallen just 1,000 points or 6% whereas the IT index has corrected 30%. That speaks for itself.
The numbers of, by and large, three large companies TCS, Infosys and HCL were all pretty good in terms of what the Street was estimating. One should look at it from the perspective that we are facing a situation like last year when the FIIs sold the financial stocks and we saw the same kind of selloff in most financial stocks this year, too. From an investor perspective, one should start considering picking up large-cap IT stocks from the current levels. We have factored in the negativity or the noise that we were hearing globally. They are trading at reasonable, comfortable valuations now compared to the last six months.
As an add on, IT companies have generously rewarded the shareholders in the last five years. In terms of PAT, 80% of what they have generated, have been paid back in terms of dividends and buybacks. One should consider this aspect and start building, cancelling the noise. If you are considering the next one year, I think IT stocks will definitely reward investors handsomely.
If you consider the stock performance this year, between and Hero MotoCorp – there was a stark difference. has been actually performing well month after month, year to date, in six months and one week. That has not been replicated by Hero MotoCorp. Do you see Hero MotoCorp continuing to lag behind the rest of the auto pack or the two-wheeler counter in particular?
It is tough to take a call on whether Hero MotoCorp could recover. It has been standing on the sideline for a very long period and the stock is available at the same price as it was almost 8-10 years ago. It has not been able to make any breakout moves as such. TVS Motors, on the other hand, is in a strong trend. But if you look at the move, the target implications for the last breakout at 800-mark is almost done at 1,100-1,200-mark so the risk reward is not great out here. Closer to 1,200-mark is where I would expect a short-term top in the making, going forward. So at these prices, the upside is not great, it is a ‘hold’ for now. It will slowly and steadily go towards the 1,200-mark. For Hero MotoCorp, as of now there is zero trend as such till the time it shows any price action, which can confirm a trend change. It is still an ‘avoid’.
What are your picks from the financial space. Are you going to venture out to other sectors?
The visibility is there in the financial space. Most of the quarterly updates by banks have been very robust. With earnings kicking off, we will have the numbers from a majority of large-cap banks in the coming weeks. I think banks should continue to do well, including those in the range of
, ICICI, Kotak and .
A lot of money can be made from PSU banks. I think, after a long time, the stocks have started delivering in terms of numbers in the last three or four quarters. My sense is, , look very attractive in the PSU pack. In a nutshell, I think all financials are abuzz and I am very positive on all these PSU banks for the next couple of quarters.
Is that going to be your Diwali pick as well? Do you think from this Samvat to the next, financial names, especially the PSU banks, will be your top bets?
Absolutely right. After a long-long time, PSU banks have been sustainably delivering numbers and it’s not just a one-quarter or one offbeat performance. We take note of most investor presentations, press notes or analysts’ readings, and conduct a dealer check with them. Most of the time, things have been much better off. If I look at the broader picture, after 4-5 years we have seen good credit growth. I think PSU banks are on the right path at this juncture. From this Diwali to the next, this PSU pack as a basket will obviously do very well.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)