I guess now it is all about earnings right. That is going to be the big trigger. I am wondering why is getting punished ahead of its numbers on Monday, although after market hours?
All the IT stocks are being painted with the same brush. When we came into the new year, the tech stocks in the US continued to fall. But despite the huge falls that we are seeing, there is still a lot of pressure because companies like Apple are slipping and the semiconductor outlook is not looking good for the tech stocks in the new year.
Obviously there are going to be layoffs in many big companies which will have an impact on the IT companies in India. So again it goes back to what we have been saying throughout most of last year that unless you have a very bullish view on the tech stocks in US which is kind of getting better only for the fact that we are expecting interest rates to be on hold at some point, the pain might still be there in the very short term as these companies have to adjust to slowing sales and obviously take a hit on their workforce in terms of reducing costs
So the sentiment will remain a little bit down for the whole IT sector. I cannot say that the outlook is going to be so rosy for them to continue to have the kinds of valuations that we are seeing today.
Retail names like , , saw big rerating. On October 21, everything was going up but since then, none of them have done anything great!
Sometimes when you have a big rerating, the share prices consolidate for some time until investors and analysts get to grips with the next growth phase for these companies. After that kind of great run, this year there is no harm in pausing. It cannot always go up in a straight line but it would not be a bad thing for some of these stocks to consolidate where we are and reflect more on the earnings and bring these valuations a little more back to normal from where we are today.
So there is nothing I am overly concerned about. It is a bit like the hotel sector. It is where people are spending money. We are going to see some form of consolidation. It is all in the price at the moment but obviously the longer term prospects remain very strong.
Where do you stand when it comes to the entire metals basket? Would you be sticking to some of the marquee names like JSW and and do you believe that if we were to see allround fall in the markets, metals too would succumb to the pressure?
Yes it is one of those dilemmas we are all facing with the metals pack. There are two divergent views. Each part of the world is going into some kind of big downturn and therefore aggregate demand in total will fall and hence metal prices will fall with them. Against that, we got the reopening of China which is giving the hope that prices will remain high. This is quite a simple view as aggregate demand globally will fall and therefore metal prices will have to come further down from where we are today.
If we get any rallies, it is probably worth selling into in our view because I do not think in the next one year, China can make up for the kind of recession that we are going to see in Europe, UK. It’s looking like a mild recession in the US at the moment. It is going to get worse before it gets better for the metal stocks, probably it is the second half of 2023 trade.
Do you think a broader correction in the Indian market was required to get more people attracted towards India? The macro story does not change so easily. Wouldn’t any correction lead to the valuation being better?
Yes, we could hope for that. In terms of what you just said, it is quite strange that we came into this year with lots of optimism that India was standing out and would continue to do so and attract foreign funds. It does not seem to be playing out that way and China seems to be grabbing the limelight in the short term but it is all about valuations.
You mentioned a number of sectors which are all about valuations. All brokerage reports tell you about valuation and that is going to be a spoilsport for the market this year. That said, what could help India is obviously the fact that interest rates go on hold and that would bring flows back to emerging markets and India would get some of its share.
Maybe some of the markets are going to worry a little bit more if the downturn globally has an impact on India’s exports which obviously would have a knock-on effect on balance of payments and that could just push borrowing costs a little bit higher than the markets are baking in at the moment. That would also put pressure on the currency as well.
Maybe that is playing out in the short term and it is something we need to keep an eye on but it is not something that I am overly bearish about. As for the story going forward, valuations have just turned attractive compared to other markets if you are looking for the Fed going on hold anytime soon.
I was talking to a FII fund manager yesterday who invests around the world and what he essentially told me is that some of the stocks in India which they own, are very expensive and after the US correction, they believe a lot more stocks over there are very cheap. Do you think that is any comparison because the size of the US market is particularly very high?
It depends on the mandate the fund manager has. If you are an emerging markets player. then you are not really thinking about the US valuations at all. You would be looking within emerging markets but if you got the whole world to go to, then markets like Japan, UK, Europe and the US in terms of certain sectors are still looking more compelling,
I mean, if you strip out some of the highly rated stocks like oil and gas in the UK and the US. then you get some companies at more compelling valuations. particularly in the mid and smallcap side of the markets. But it really depends on where you feel interest rates are going in the very short term and where you think the recession is going to bite and how hard. That is where fund managers might have been thinking that the US is looking a little bit cheaper but most markets are looking cheaper than India.
