Q: How would you approach technology now as a sector, are you surprised with what has been happening in the currency market this month or so?

A: I do not think anything has changed substantially in the technology space barring of course the respite that we have got on the currency front. On a one-year basis the rupee is still appreciated by more than 10% but last quarter of course if at all anything the rupee depreciated by slightly over 2% or so.

Putting the currency factor aside just evaluating the technology space on pure fundamentals there are two worries be it an Infosys or a TCS the fact of the matter is that even today more than 80% of the business mix comes from the US and UK geographies. So I think the geographical mix is certainly not reassuring. Secondly, both for an Infosys and TCS which are bellwether stocks within the tech space more than 30% of the revenues come from the banking and financial services verticals. As all of us are aware that segment has been badly butchered to put it mildly.

So my personal sense is that yes, technology stocks are looking cheap. They are trading at more than a 20% or even a 30% discount to their peak multiples. The other comforting factor is that the rupee is not likely to appreciate anytime soon if the kind of flows that are coming in is anything to go by. Also the earnings growth is also going to be fairly decent. For all the key technology companies our houseview is that the earnings growth would be in excess of 20% or thereabouts.

However, I think the markets do not always react to just fundamentals and if that is a some kind of a cue that we need to take stock of then I would rather be in a Satyam where the banking and financial services vertical accounts for no more than 25% of the overall revenues of the company with respect to geographical mix-barely 25% of Satyam’s revenues come from that country.

So if you ask me to buy anyone company within the technology space, I would stick my neck out and go for a Satyam where incidentally we have-I am told-a pretty ambitious price target of Rs 622. On the other technology biggies at this point, we are still sellers of those.

Q: How would you play steel now in the light of all the news, which is swirling around?

A: I agree with the statement you have made that steel is hurting and I think it has to do with a couple of factors - one is input cost which has gone up anywhere between 50% to even 200%. The price of coking coal has gone up from USD 90 March last year to something like more than USD 300 as we speak and the fact that for a tonne of steel, you need 0.65 tonne of coking coal that is self explanatory that a rise in input cost can hurt steel majors significantly.

The other thing is that the employee cost seems to have gone up significantly - a classic case being JSW where the employee costs went up by more than 100% and ate into whatever the company made by way of margins at an operating level.

I think more importantly, the other interesting thing to notice that while there are companies which will continue to underperform because of government activism, because of rise in input costs because of the supply-demand dynamics - as things pan out, somebody like a Tata Steel is going to buck the trend.

If you look at a Tata Steel, JSW and a Sail; JSW and Sail are trading at anywhere between 8 times to even 9 times one year forward EPS whereas Tata Steel, thanks to the way the stock has been hammered in the last couple of weeks, is today available to you at less than 7 times one year forward EPS. So on the valuation front, it is core hands down. Also it is not going to be affected by government intervention because more than 70% of the revenues in a consolidated form post the Corus merger comes from international operations.

I think the other interesting thing is that product prices will continue to move up and our personal sense is that a 5% increase in product prices will positively benefit Tata Steel, other things remaining same to the tune of anywhere between 30%-35%. Given the huge operating leverage which Tata Steel enjoys despite the fact that integration levels are today less than 20%, post the Corus merger, I think given the positives particularly on the valuation front, Tata Steel is something which could certainly be bought for investors who are looking to buy it for the long haul.