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    Do not see a runaway rally happening in IT stocks anytime soon: Sandip Sabharwal

    Synopsis

    “In two-wheelers, although Hero MotoCorp numbers look a bit better on the face of it, Hero as a company has a habit of flooding the market and then course correction is happening, whereas other players like TVS and Bajaj Auto are more careful on how many vehicles are put on the ground. So to that extent, the two-wheeler space still is a concern. ”

    Sandip SabharwalNEW-1200ETMarkets.com
    “Indian IT companies are now a large chunk of the overall IT basket, unlike what it was 10 years back. My view is that next year growth would be impacted significantly and the growth projections of most analysts and investors are still very aggressive. I would still wait it out and see how it goes. We will need to see for one or two more quarters. I do not see a runaway rally happening in IT stocks anytime soon,” says Sandip Sabharwal, asksandipsabharwal.com

    Paytm has underperformed but there is a price at which businesses start looking attractive. There is definitely an admission, acknowledgment and some communication from Paytm that they want to walk on the path of profitability. Some analysts who attended the call are saying the management is sounding serious.
    I think it is high time that many of these managements acknowledge the fact that they need to make profits at some stage. Whether they are actually going to make profits or are making these statements because their stock price has fallen so much and they are under pressure from their investors and analysts to talk the right way and not make fillip and statements, is something we need to see.

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    As far as Paytm is concerned, their business model is one which has very little entry barriers although their presence across the country in terms of merchants and users using Paytm is quite substantial. How well they can monetise it is something we need to see because till now, the strategy has been just to accumulate more and more merchants and Paytm users.

    In most cases, such analyst meets are held to make the analyst more bullish. They have achieved their target and so let us see how it goes. The way many of these stocks have plummeted when markets have moved to all time highs and technically what I observe is that incremental sales by older investors is not creating fresh new lows now.

    For example, Zomato also moved up after the stake sale. Similarly, the stake sales at lower levels are not creating further lows for the stocks and that indicates that there are some investors who think the bottom is in place and if that is a general belief building up, then there could be a trading opportunity for people who are willing to take that bet.

    Let us talk about the traditional IT/IT services companies. I will never forget how you once said that you will only buy Infosys at Rs 1400 but just seeing the way the IT sector has performed this year and the comeback has started, we started to see in the IT stocks the right time to accumulate, especially when we talk about the largecaps?
    The advantage of largecap India IT companies is that they are strong cash generating companies and they do continuous buybacks to give that cash to investors and they do not require such significant capex every year. Their cash flows keep on improving which goes back to shareholders.

    The negative part is the potential growth slowdown which is going to happen if you look at the growth forecast of the global economy even by MF or indication from the US Fed about US growth next year. All indicate that there will be a significant slowdown next year and that significant slowdown is already leading to some cutback in IT spends.

    Indian IT companies are now a large chunk of the overall IT basket, unlike what it was 10 years back. My view is that next year growth would be impacted significantly and the growth projections of most analysts and investors are still very aggressive. I would still wait it out and see how it goes. We will need to see for one or two more quarters. I do not see a runaway rally happening in IT stocks anytime soon.

    How are you rounding up the auto sales numbers that came in? What are the expectations for the coming months?
    Auto sales numbers held up pretty decently in the context of what we are hearing on the overall consumer basket where there are indications that in November, consumer durable sales and also to some extent non-durable sales have fallen off. The growth has fallen off very significantly. Auto sales to that extent are holding up which is clearly a positive now.

    In two-wheelers, although Hero MotoCorp numbers look a bit better on the face of it, Hero as a company has a habit of flooding the market and then course correction is happening, whereas other players like TVS and Bajaj Auto are more careful on how many vehicles are put on the ground. So to that extent, the two-wheeler space still is a concern.

    M&M continues to outperform and that looks good. Ashok Leyland numbers were good but the valuations are not really cheap because the stocks have hardly corrected. I like Maruti at these prices but their sales are not showing the growth which we required to play in the near term. That is something we will need to watch out for.

    Year to date, top of the pack banking performers are BoB, PNB, Indian Bank, Canara Bank and HDFC is in the last lot. Just want to understand whether this is a rising tide phenomena because these banks are yet to catch up with the likes of ICICI Bank and SBI. Do you see a meaningful investment opportunity in some of these smaller PSBs?
    There could be but I do not invest in these stocks. So it is tough for me to say because I do not believe they have sustainable profitability models for the long term. In the near term, people have been very surprised by the huge profits they are reporting simply because the write offs have simply disappeared. Now going forward, we need to see how the NPAs play out as interest rates rise and that will determine longer term price. In the near term, they are under owned stocks at this stage so they could still perform.

    You own Britannia and you own Dabur, any reason for anyone to believe that you are looking at selling them, the stocks both at an all-time high?
    Both companies are doing very well in the context of the overall market. The resilience of Britannia especially has been very encouraging and to that extent positive and Dabur also has held up pretty well and going forward we could see improvement in margins so I think these companies are doing well and good for long-term investors.

    When you added last, I mean last we spoke was you added into Texmaco, you bought I think into Titagarh.
    Yes those were sometime back and after that the stocks gone up so much so I think now people should wait out for these stocks and enter on some sort of corrections but in terms of newer stocks I think what we added was Balrampur Chini around 310-315 levels because I believe after one, one-and-a-half years of profitability downcycle, we could be entering into a decent cycle over the next two years and the stock was cheap and the other stock I have talked of is VA Tech Wabag where there is a strong transformation happening.

    The stock used to trade at Rs 700-800 a few years back before they got into all the balance sheet and cash flow issues and many investors are not recognising their change in strategy, focus on cash flows and almost very low leveraged balance sheet, stock still trades at 8-9-10…. I think after the move up around 10 times next year earnings I still think there could be rerating potential there.

    I just wanted your thoughts in on the entire realty space, we were just talking about as to how once again the stamp duty collections in the city of Mumbai and the state of Maharashtra have been at an all-time peak, again month on month you continue to see increases but what do you really bet on if you have to make money from this real estate demand boom?
    The larger companies will be the ones which will do well but right now we are out of all the real estate companies as far as our portfolios are concerned because they moved up too much too fast and to that extent I do not really see valuation led value opportunities right now but on corrections the larger… so there are regional players like Sobha Developers, Godrej Properties, Oberois and then there are some pan-India players like DLF so all of them could be potential buyers at particular prices but right now I am not looking at investing in them.



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    (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
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