Don't buy IT largecaps now, may fall another 10-15%: Sandip Sabharwal

“Among defence stocks, HAL and BEL are pretty well placed and can be bought. Astra Microwave is also an interesting company. Among companies which are also making forays in defence but which have other businesses is Bharat Forge. It is very reasonably priced now,” says Sandip Sabharwal, asksandipsabharwal.com.

The fall has happened. It’s 30% down for HCL Tech; TCS at a 52-week low, 40-50% down for midcap IT. Now, these are cash generating companies. They are still growing, the selloff has happened. Is it time to think contra and maybe buy largecap IT?
Not right now because the managements are still too bullish. If the management has to turn a bit bearish and once that happens, that will give the opportunity, it could be maybe 10-15% lower than the current prices.

Russia is at war, Opec is talking about high demand, China is opening up and crude has gone to $97. Can I use that phrase that which I have not used for a while – acche din (good times)?
I do not know whether it is because of acche din or kharab din (bad days) coming. It is falling because people are anticipating recession. Recession is not good for anyone but India is slightly differently placed simply because of the fact that our inflation issues are not as big as what the west is facing.

On a target of 2%, they are at 9% inflation. India at the top end of the band at a target of 6%, is at 7%. Even if it is 8%, still we are not so far off. So I think Indian situation overall is better than that of the western economies.

However, their monetary policy impacts our asset prices. So, it will be foolhardy to assume that the global liquidity tightening will not impact our asset prices. It does, but since we are better placed and our inflation dynamics might turn much before those economies, we will have a faster recovery also. That is what we have to play for but the next few weeks could be tough.

It is not that domestic institutional investors are running out of cash. Even if the FII selling is there for the next couple of months, Indian institutional investors courtesy NPS or SIP or via the local fund route, can still flex their muscles? It is not a one-way street. It is not like there is no light at the end of the tunnel?
That is true and that is what has been happening in the market over the last many months. However, I am not a very strong believer or an analyst to predict the market because ultimately markets are a slave of earnings. So despite all the flows which are happening in largecap funds or the ETF money going into the largecap companies, TCS today is at a 52-week low, more than 20% off from the top. Ultimately it is all about how companies do or the economy does and how the overall earnings picture is. That is what we need to analyse and find out the companies to buy at the right valuations.

Some of the defence stocks are just going wild – be it BEL, HAL or even BEML. Is there still some more juice left in the defence indigenisation theme?
I think there is. What we are seeing is that they are not correcting as much when the market corrects and they tend to do much better in the market rallies. They are still not very overly owned stocks and if you actually look at most institutional fund portfolios, you hardly see these stocks. They are there in a few portfolios but not many. I think this theme will play out.

There is a huge focus of the government on indigenisation and getting in newer and newer products and also larger value products and of bigger quantity into this indigenisation pool. Pure play defence stocks will do well for sure.

What will you buy? Would you buy the private companies – Astra or Paras Defence or keep it simple and safe? When it comes to defence, it is dependent on the government and is it better to buy HAL or Mazagon Dockyard?
HAL and BEL are pretty well placed and they could be bought. Volatility will also be lower there and it is good for retail investors. Astra Microwave is also an interesting company which on corrections, seems interesting to me.
Among companies which are also making forays in defence but which have other businesses is Bharat Forge. It is pretty reasonably priced. It has not moved at all with the ancillary pack or the auto pack for some reason but at the current prices it is good to own.