earnings season: IT may see surprise on the downside; metals to continue to be subdued: Sandip Sabharwal
Should one hazard a guess as to which way the IT earnings are likely to be and build any kind of positions ahead of that because the expectations are quite muted? Could there be some sort of surprise?
The surprise could be on the downside. I am not very bullish on IT stocks at this stage because there is uncertainty and delay in decision making. There are banks which are suffering. US financials is a big segment for many of these companies. It is tough to build a bull case although the stocks have underperformed significantly. Let us see what comes out, how the expectations are and what they guide for and we will take a view after that.
What is your view on KPIT as well given the recent downgrade and the knee jerk reaction on the stock price just when it was at its 52-week high. What next?
It is in a segment where growth visibility is the best among many of the IT companies but valuations also matter. When the overall IT basket is trading at 15-17 times earnings and the stock goes to 70 times earnings, then obviously it is excessive. That correction in valuations keeps happening like we also saw in the case of Tata Elxsi in the past.
If high valuations get combined with some slowdown in growth, then the cut back in stock prices can be very significant. I would think that risk reward is not in favour at these prices for new investors who do not have the stock. So, wait out for the results, see the guidance and then take a call.
What about metals as a space because that too has been fairly volatile but there seems to be some constructive word coming in with respect to domestic steel prices with the China reopening theme?
I personally think metals overall will have a subdued period for the next one or two years as global economies slow down. Even China’s growth revival, if you see the data coming out for the first two, three months, is not very exciting. It is important that investors remain more focused on domestic growth-focused themes rather than global themes at this stage.
What about pharma and healthcare because again the Covid cases are on the rise? The manufacturing vertical of pharma is something that one should look at versus hospitals. Where does your preference lie?
I personally do not think so because I believe the pharma basket overall is more of an export story and there are various issues related to various companies. So pharma stocks are individually evaluated. Hospitals is more a domestic theme and it is a long-term theme. We had a sharp run-up, these stocks are consolidating. From within these two sectors, if one has to choose one at some stage, I would say the hospital theme looks better than pharma.
