The Economic Times daily newspaper is available online now.

    Should you start buying IT stocks now? Deepak Shenoy answers

    Synopsis

    "I will still bet more on the M&M than Tata Motors because the latter is more international and internationally, the demand seems to be coming down. India seems to be doing better and M&M actually has that. But it is not just the car company. It has got the ownership of everything else. There is a bunch of new small things that add up here. We have bought it because we like the car company but also this growth in some of the industrial and the ancillary units. "

    When is the right time to pick up IT stocks?  Deepak Shenoy answersAgencies
    “This is probably the time to start building those positions that you are going to have to build on top of news because I do not think this is going to be like a trigger and then as it goes up suddenly, it is going to be slow deal flow. They will be announcing deals. The market will mostly ignore the deals because when it is bearish,” says Deepak Shenoy, Founder, Capital Mind

    How worse would it get for IT before the situation turns better?
    The first signs of anything that is going to be bullish for them will come in January and February because that is when budgets in the US start getting set. The large IT companies are going to be the beneficiaries of cost cutting because they have good balance sheets. In all probability, the US companies will say takeover x part of our company and billers are on an ongoing basis. The few companies that have the balance sheet to do it are the large five in India and they will start to benefit from such deals towards the middle of next year, maybe after February and March.

    But the market would begin to price that much earlier. Are you saying that the time to buy them is now?
    This is probably the time to start building those positions that you are going to have to build on top of news because I do not think this is going to be like a trigger and then as it goes up suddenly, it is going to be slow deal flow. They will be announcing deals. The market will mostly ignore the deals because when it is bearish. The market just ignores all the good news and over time, they will start to see these profits start to come on their balance sheet starting with the largecaps.

    Unlock Leadership Excellence with a Range of CXO Courses

    Offering CollegeCourseWebsite
    IIM KozhikodeIIMK Chief Product Officer ProgrammeVisit
    Indian School of BusinessISB Chief Technology OfficerVisit
    IIM LucknowIIML Chief Executive Officer ProgrammeVisit

    Also Read: 2023 will be a much more volatile year & tougher to make returns. Deepak Shenoy explains why

    So we have only largecap IT right now in our portfolio but one of the reasons is it is very difficult to look at the midcaps right now because they have weaker balance sheets.

    Did you end up buying the M&M car we were chatting about or are we just adding more positions to the stocks?
    We bought the stock, I went in and try to buy the car. They still have not given me one. I have another eight months left and I have driven it all around Nagpur.

    So it has passed the test drive and more…
    Now it is like forget the test, give it to me. Driving is part of the test but it is a beautiful car and it compares very well on features even with some of the larger even the German cars because some of them had to drop features because of the chip problems that they have. A BMW that does not have for instance the 360 degree camera whereas some of the breakings and road assistance systems that the top end of the XUV 700 has.

    What about the stock will that continue to perform the way it did or is it now time to bet on Tata Motors perhaps?
    I will still bet more on the M&M than Tata Motors because the latter is more international and internationally, the demand seems to be coming down. India seems to be doing better and M&M actually has that. But it is not just the car company. It has got the ownership of everything else. There is a bunch of new small things that add up here. We have bought it because we like the car company but also this growth in some of the industrial and the ancillary units. The weakest part is Club Mahindra and Tech M.

    They have defence business.
    They have defence and that is the other part that is going to happen again because these are small things. I hope Mr Mahindra decides to demerge some of the holding parts of M&M and the auto part of M&M. It may not happen in my lifetime but let us see, we are holding on with hope as well there.

    This is another space AMC counters which has not seen much action, whether it is HDFC or UTI. So you expect this to reverse in 2023?
    We are an AMC ourselves so in a way and so I hope it does…

    Because there are a lot of inflows but it is not reflecting. AUMs have been going up for yourself as well but it is not showing in the stock prices?
    Two things here. First the stocks got valued a little too heavily in the last one year. Even HDFC AMC was the largest AMC when it came in. It lost a substantial amount of market share and now it is the third.

    SBI and ICICI have both overtaken it, as has ABSL. After the IPO, the performance on the market share piece has been substantially lower. UTI is more heavy on debt and perhaps there the ownership issues draw to light little more uncertainties because eventually the public sector entities that own it will have to sell stake.

    There is T Rowe Price which is actually going to own it. There are a bunch of questions there. Nippon is one of the few that excites us but the PE ratios have come down. The problem with AMCs in India is that they cannot do anything else, they can only be in AMC. Would you give money to an NBFC? It could lend more for instance but when an AMC earns profits, it has to give them to shareholders, it cannot set up a lending business or anything else in the financial space at all. So that limits the ROE compounding that you might want in a player like this.

    Perhaps some of the valuations coming back to 15 or 20 PE levels might be more okay but I would like the holding companies of AMCs like Motilal, which have the ability to expand. We do not own any right now but that is where the space might go. The AMCs, given this ROE kind of brick wall, at some point we will end up owning them. We do not own any unfortunately even though we are one.



    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more


    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
    The Economic Times

    Stories you might be interested in