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    Market to consolidate until the end of December: Siddhartha Khemka

    Synopsis

    “Larger IT deals are generally awarded to companies with a larger size and so LTI-MindTree combine will now be eligible to bid for even larger deals and that should be positive for the company. It will put some pressure on some of the existing players. Wipro has been lagging in terms of growth compared to peers while HCL Tech has been focussing on a different segment and is trying to improve growth.”

    Siddharth Khemka2-1200ETMarkets.com
    “The market would consolidate in the near term until the end of December where again because of the festive season, the FII activity will also reduce until the next quarterly season starts. So a lot of global developments but lack of triggers could keep the market consolidated in the near term,” says Siddhartha Khemka, Head of Retail Research, MOFSL


    EaseMyTrip, Paytm, anything that you are watching out for from among the new age tech stocks?
    The new age tech stocks are going through a difficult journey, after having been listed for more than a year. We have seen a barrage of selling from some of these pre IPO investors. We have to take case by case the business models and the future outlook on some of them and it is very difficult to form a view on the entire space.

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    We have seen clearly that the market has not been liking Paytm, given that there is no visibility of any profitability, while on the other hand, Nykaa is already profitable and Zomato has given some direction towards or path towards profitability in its recent quarterly updates where the management has spoken about how they are not going to invest any further into Blinkit which was a cause of concern sometime back.

    Having said that, from a retail perspective, this is definitely a high risk space given the lot of news flows, developments, the kind of blocks that we are seeing and one needs to really be cautious even though one is looking at a long-term perspective.

    We can argue about whether these are good banks, bad banks or small banks, the bottom line is that if you bought into some of these PSU banks, whether it is small, big, large or wide, you have made a lot of money?
    You would have made money in the last one, one and a half months only. What about investors who would have bought for several years now? The question is whether these banks merit this kind of investors’ interest. If you look at what is happening, if the credit cycle in India is improving after almost eight, nine years, the system credit growth is at 15-16% and over the last few years, the balance sheets have improved.

    So, going forward, we could see a good growth in the P&L of a lot of these large banks but they have already moved up. Some of the smaller banks are under-owned. They have improved their balance sheets and have started reporting improvement in their quarterly numbers and finally the valuations were very cheap or attractive for these kinds of run up that we are seeing in these stocks.

    It definitely makes sense for some of the people who are looking at a short term trading opportunity; but for the long term, one needs to stick to quality, proven track records, management pedigree.

    Within the banking space, we have generally seen that size does matter. In an economic upcycle. the larger ones tend to benefit more. I think one needs to stick to the larger ones. So within the banks, if you look at and focus on the PSUs, definitely SBI is something that we have been preferring a lot but if you look at something in mid space, Canara Bank is something that we have been incrementally liking. They have reported healthy Q2 numbers led by continued traction in loan growth, improvement in asset quality and expanding margins.

    The management believes that current capital is enough for the growth to take care of in the near term. If you look at the ROEs and ROAs, we are expecting ROAs of 1% and if you look at the price to book, they are at a steep discount to that. Definitely there looks like a good upside from the current levels at least in some of the better quality names.

    IT is not the hottest sector at the moment but one trend that we have seen from the start of the year is a change in leadership within sectors whether it is autos or the banking sector. We have seen the churn amongst the stocks itself. Now with LTI-MindTree coming in the top five, what do you think will it mean for the likes of Wipro, Tech Mahindra, etc?
    Definitely the sector rotation and leadership rotation has been happening at quite a pace this year, within sectors as well as stocks. The merger of L&T Infotech and MindTree is a welcome step and it will bring in a lot of efficiencies and especially when we see in terms of the deal wins’ capabilities.

    Globally there is definitely a size requirement the Fortune 500 companies go with. Larger deals are generally awarded to companies with a larger size and so they will now be eligible to bid for even larger deals and that should be positive for the LTI-MindTree combined.

    Definitely that will put some pressure on some of the existing players. Wipro has been one lagging in terms of growth compared to peers while HCL Tech has been focussing on a different segment and is trying to improve growth. This will be largely positive for the combined entity LTI and MindTree.

    What could be the trigger for the market which will generate upside momentum? The earning season is over. We have heard from the Fed as well as RBI. Crude is down, commodity is down, inflation fear is also over now?
    The management commentary going forward and further correction in commodity prices could be a trigger that market could be looking at and also if we look at it in terms of the global cues, any softening of the geopolitical tensions would help improve these sentiments.

    One of the biggest challenge that the investment world is looking at is the expected recession in the developed markets, especially now with issues not getting over in China and lockdowns continuing. If something of that sort reduces, that could be another trigger but as we were discussing earlier, right now there is a lack of triggers.

    We are already at 18,200 and there are not many triggers on the domestic side. The result season is over and people know what the Fed is going to do in the first week of December and RBI would be following up on that.

    I think the market would consolidate in the near term until the end of December where again because of the festive season, the FII activity will also reduce until the next quarterly season starts. So a lot of global developments but lack of triggers could keep the market consolidated in the near term.



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    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
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