Are we close to the bottom in IT or not? Would you begin to buy the decline in IT just yet?
The answer should be yes. My sense is pessimism leads to more pessimism and right now, in the mother market Nasdaq – from which Indian IT borrows a lot of its trends – we have seen a more than 20% correction. People are talking about a bear market for at least IT business.
In India also, the likes of
to to to to even L&T Technologies are correcting anywhere between 20% and 30-35-40%. My sense is valuation re-adjustment is happening for equities. Across the world, some re-adjustment is happening to equity valuations and that too for IT valuations which in hindsight were larger than what it should have been.
The sense one gets here is the margin miss by say 100 bps or 150 bps and a little bit of a weaker guidance in terms of margins not expanding and attrition has taken its toll on these businesses. The productivity enhancement efficiency, digital, work from home, all these hybrid cultures would make a lot of these IT companies very attractive in terms of Indian exports also.
There is a big competitive edge for a lot of these large companies as well. My sense is one should probably start picking and choosing. It will not be a linear ride for all these businesses. Probably in the next couple of quarters, we will get good opportunities. It is time to start accumulating some of these businesses.
What is the view when it comes to the metals basket? A lot of these stocks have been clobbered quite badly in the trading sessions that we have seen and we had the government imposing export duty on iron ore and steel intermediaries. A lot of brokerages downgraded the stocks. Are you changing the outlook when it comes to the metals basket?
I think at the expense of being repetitive, we have been very vocal in saying that it is time to book out of certain global cyclicals and, more so metals. They had a dream run. So stocks like started the rally at Rs 150-200 and probably the stock touched a high of Rs 1,300-1,400. Yes it is a clear long-term cyclical and in a way it is a . One can never time both tops and bottoms in cyclical businesses and if you are making 5X, 6X of what you have made probably, greed cannot last. One needs to book profit over there.
Again what the Indian government did at this point to protect the way forward or rather curb inflation will also positively impact a lot of companies which were worried about the raw material costs. My view is it is a double-edged sword in a way. It seems like, in metal stocks, the best part of the rally should be over.
It is very difficult to time businesses which are dependent on global data or macro data but yes metal is one sector which we have been avoiding since a long time and I would say that rally probably seems to be somewhere close to the end..
It has been a busy couple of weeks for the Adani Group of companies with the acquisition of Holcim India operations – Ambuja and . They created the healthcare subsidiary – Adani Health Ventures. They have been on a very explosive growth trajectory. What is your view on some of the select businesses within this space?
Unfortunately, we do not track the Adani group stocks. But yes, just to answer the question, clearly a lot of competition is emerging into the marketplace as well. A lot of these sectors – be it cement, be it medical diagnostics – a lot of companies get into price wars. A lot of companies are expanding that shows that there is going to be certain capex in the economy and the demand is going to be good for the next three-five years.
I take it as a macro positive when big groups go on an expansion spree and they have all the confidence in the world to raise debt also. It shows there is enough money to be made on the table for a lot of these businesses. I am not commenting about any specific group, but a lot of these companies where the market is going from unorganised to organised is also a huge opportunity for all these companies.
What is your take regarding some of the recent government measures like curb on sugar export limit, wheat export ban, some steel levies coming in. This just adds to regulatory risks for a lot of these companies. What should one do at this point of time?
This is a very relevant question and that is why we have an investment statement which generally says what not to buy. It is very important on the Street to have a view on what not to buy and that is why wherever there is going to be a government interference like we saw or government regulations which would hamper the prospects of a sector or a respective company, we do not take material positions over there. In fact, I can say we do not have it in our buy list or watch list as well.
All these companies also go through a lot of deep cyclicality. Sugar, tea or coffee depend on a lot of prospects about how the rates would pan out or how the imports or exports from Brazil would pan out. There’s a lot of international dependence when one talks about the type of sugar companies, the ethanol blending and all such stories. They had a dream run. As I said, all the cyclicals in the last one, one and a half years, had a dream run.
One should probably not be in the sectors where there will be a lot of government regulation or interference as curbing inflation would be the need of the hour. A lot of stocks have gone through corrections. There is a lot of opportunity over there rather than getting into sectors which probably bore the brunt of regulatory environment change.
The intriguing thing about Delhivery was that much unlike the recently listed or IPO plays, this one managed to break ground pretty smartly. What is it that you are making of this logistics space getting a bump up because of ecommerce? Where does Delhivery stand within the pack?
Logistics is one segment which one should look at with a lot of interest. Ecommerce is about to gain and in the last two, three years, a lot of people who were not sort of shopping addicts doing online bookings, have also started to do that. In the value chain, a lot of warehouses have benefitted and also a lot of courier companies or companies which operate in the logistic space also tend to benefit out of this.
I have not tracked Delhivery very closely and so would not be able to comment on specifics of that but yes, the segment seriously looks interesting as globally this has been the phenomenon where your online shoppers community keeps on increasing and keeps on getting biggers as offers get more and more lucrative. So this side of the business cannot be ignored. Companies with a good business model, which keep costs under control will tend to benefit as we go forward.