Have reasonable exposure to IT stocks; Infosys top pick: Anand Tandon

Rural is certainly something where you are likely to see at least some uptick, says the Independent Analyst.

The auto stocks that stand to benefit from the rural demand are rallying. Do you think that is sustainable or is it going to be enough to overcompensate for the slower pick up that we are seeing on the urban side?
Right now the market is not looking at any negative news. Rural markets were anyway expected to do well. We already had most of the water bodies in India at near or full level even going into the monsoon and the early indications are that it is doing very well and is well spread out. So given the fact that there was no lockdown due to Covid, it was natural that you would expect to see rural India doing reasonably well and that has turned out as expected.

Tractor sales are showing reasonable growth. The smaller two wheelers are showing decent numbers. Now is that going to be enough to compensate for the slowdown in urban areas? Certainly not. Therefore, at some stage, the valuations will become expensive. I would argue most of them are already expensive but the market is not willing to necessarily heed any of those caution. So for now, the theme if you want to be protected is to stay away from those where growth is still somewhat not assured. As we just discussed, rural is certainly something where you are likely to see at least some uptick.

Let us also get in your take as to where you stand when it comes to IT companies? Where is it you find your preference within the IT basket?
IT overall looks cheap compared to the rest of the market. Certainly it is not going to do anything surprising as far as the services companies go in terms of very high growth, especially given the context where most companies have withdrawn guidance. That said, given the quality of management, the quality of the balance sheet and the fact that the main market, where most of the companies depend on the US, has actually recovered much faster because of the kind of action of the government.

That would lead one to believe that the numbers may not be too bad. While the valuations have not shrunk or expanded tremendously in this sector, the fact of the matter remains that this is one of those companies which will benefit from any weakness in the rupee or will be somewhat insulated from any negative movement in the domestic front. So overall, it requires to be a reasonable part of your asset allocation and within the equity market, we are at least slightly overweight now. The frontline company I still prefer is Infosys. I think the management is doing a good job of maintaining the kind of growth that they are in and the valuations are not demanding.

It is now ICICI Bank that is mulling raising funds. How are you looking at this move at a fairly uncertain time like this? What could it potentially indicate for some of these banks?
To my mind, it is a great move largely because the market is still somewhat volatile and you still do not know what kind of numbers will come out once the moratorium is lifted. So at any stage, the raw material of a bank is money. Therefore, they have to keep on raising money. The only concern one could have perhaps is the fact that raising money at this stage would actually dilute more than perhaps when it was a little more expensive. But clearly that should not be a constraining factor because one thing is clear. Companies that have money will be the ones that will be able to gain market share. More importantly, investors at this stage would look for balance sheets which are actually fairly robust to put in more money.