Good things do not seem to last too well for Indian IT. After the kind of quarterly performance we saw from Microsoft as well as Alphabet, others also are lined up in the next 10 days or so. There’s a pretty soured sentiment across Nasdaq too.
What has happened is that on the way up, the tech companies in the US were the darlings and they were the large part of the index and they pulled the whole US market up. Now people are looking at earnings. Obviously Meta was a complete disaster, It is down 75% from its highs. Microsoft and Alphabet are all seeing less ads, people are cutting back on subscriptions, people are beginning to tighten their belts and that is obviously showing simply because corporate America is having to borrow at 7-8-9% whereas they were borrowing at 2-3-4%. So, they are counting their pennies and some of that effect has to come to us.
Our market is doing okay because the rupee is devaluing compared to the dollar but at the end of it, all that selling pressure has to come here and we are seeing it because FIIs, FPIs have been selling almost continuously.
Where do we need to be cautious right now? Coming to banks, would you tread with caution? Wouldn’t you buy into the flurry of trade in the smaller banks?
There are two parts of this. Right now, there is a good run in banks for the next six months to a year and since most trading people have a horizon of probably one month that is probably at least best to do. There is supposed to be consolidation happening in the Indian PSU banks, particularly the smaller ones and we are also hearing some of the names like
, all which have come off and people are looking at buying those.
On the top end, I personally feel that the merger of
and is going to put some pressure on them simply because it becomes such a large part of the index that some funds will be forced to sell; not the ETF funds but the general funds because suddenly the combination instead of being 10% and 7%, with be maybe 17% for some and that will make them trim which in turn will put pressure on both the stocks.
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So, yes, it is a place to be because it is considered to be a growth sector in terms of the economy but there is a run of six months, maybe a little longer before we see any kind of hurt and if you notice, most of the banks are not provisioning as aggressively as they were six months to a year ago. That has also helped earnings for sure.
The two spaces which have not seen a positive earnings reaction so far are FMCG and pharma. How are you approaching these two spaces and any top bets in these sectors?
Both these sectors are the ones to be in if you want to believe in India Inc. Pharma, definitely Indian pharma, has been good but again it is a little boring. If investors are trying to make super returns, pharma may not be that attractive.
You also mentioned FMCG. We are seeing a little bit of pressure on the FMCG mergers but on the other hand, we are seeing a company like
buying this masala company today. They obviously feel that there is a future in consolidation. I see more of those kinds of merger deals happening and I think that is going to be good for the mid-tier FMCG stocks. That is going to be good for them if their brands get rolled out and sent all over the country and certainly these large players have the ability and distribution to be able to make it work.
Where within autos are you placing your bets? Who would have thought that year to date, the biggest performers from within motown are going to be M&M and ?
They have actually focussed and managed to get the chips sorted out which is the big problem for all the auto makers and now with the demand coming in, apparently there are no cars available in the showrooms. That is good for the manufacturers. But I guess now it is going to be a game of who can get the supply chain sorted out without China. That is the challenge.
Is it a fair bet to look at the metal names as of now or are they a purely trading bet?
The thing about the metals pack is we know very little about what is going on in China and China is really driving metal prices. If they stop, the world stops, if they buy, the world suddenly has a shortage. But our metal manufacturers have been able to take advantage of this and certainly steel has had a great year.
They are supposed to be lifting the export ban. There were some restrictions and of course aluminium and all the other metals have done well. So enjoy metals while we can.
One stock idea or any sector that is looking interesting and safe to be in for the foreseeable future?
I would rather turn your question the other way, which sector you should not be in. I am not so comfortable with IT despite the fact that Rishi Sunak has become the PM of England. I just feel that the IT sector is a little bit overpriced. It will probably follow the America tech stocks even though it is not the same thing and they have got pressure on them and they are probably headed down, despite the fact that the rupee is weakening against the dollar.