IT stocks yet to bottom; consumer staples to underperform: Sandip Sabharwal

“The IT stocks have held up reasonably well. My guess is they will bottom when we start getting news of slowdown and these management will start cutting down on their growth guidance, etc. Once that happens, that will be an opportunity. I do not think we are at the bottom at this stage,” says Sandip Sabharwal, asksandipsabharwal.com

Has the time come to look into IT or at least start nibbling in? Is the worst behind us in that sense?
I do not think so because the optimism of the managements and analysts still is very high and on the face of it from whatever news flow we see coming out from western economies, a recession seems imminent and a slowdown in technology spending is also very likely. All indications point towards that but the stocks have held up reasonably well.

My guess is they will bottom when we start getting news of slowdown and these management will start cutting down on their growth guidance, etc. Once that happens, that will be an opportunity. I do not think we are at the bottom at this stage.

Also Read: Why Sandip Sabharwal will still avoid Paytm, Nykaa, wait for Q1

Would you remain very selective when it comes to the entire consumer staples basket?
What is happening is that because of high inflation on ground, consumer demand has been constrained. So what many of these companies are doing is that the advantage they are getting out of lower raw material input prices, they are spending on advertisements and promotions rather than in trying to improve their margins at this stage.

That is where the earning cuts have come in and to that extent, it will be very important for inflationary pressures to fall and rural incomes to pick up which is likely, given the high crop prices that could be supportive at some stage over the next six-nine months. Near term, the earnings are under pressure and so overall as a sector, except for very few companies which stood out, we will see the sector underperform.

Do you think after the recent underperformance of a stock, it is now a fair buy?
In this market, unfortunately many retail investors are misled by the confusion between a good company and a good company at a good valuation and the price to buy. A thesis has been floating around that one can buy a good company at any price. But it does not work that way.

There are periods of euphoria, there are periods of despair and one needs to buy such companies when the stock is down. Take for example Page Industries. In 2017 or 2018. it went to Rs 36,000 then it halved from there to Rs 18,000. People who waited patiently for a good price to buy, could buy it at that time and make good money.

I think people need to do the same for Campus. It is a good company which is facing headwinds today in terms of earnings growth, growth, etc, The valuations are still very excessive even at this price. At some stage, it will become attractive, it is not attractive today.