See topline guidance of 18-20% for IT cos: StanChart MF

Ajay Bodke, Senior Fund Manager of Standard Chartered Mutual Fund, said he's looking at a topline guidance of 18-20% and a bottomline guidance of 15-16% for IT companies in FY09.

He sees the global steel environment as positive. There is value in Indian steel companies from a medium-term perspective, he said.

Excerpts from CNBC-TV18's exclusive interview with Ajay Bodke:

Q: What are your thoughts on the IT sector - first the stocks are strong leading upto the Infosys guidance, do you think the optimism will be justified?

A: We are looking at around 18-20% topline growth guidance for FY08-09 and a bottomline growth of around 15-16% from the top rung IT companies. Valuations look attractive, however I think the global cues from the US will be negative. I have been maintaining this from the last one year now, the two largest verticals, namely banking and financial services industry (BFSI) and telecom continued to be challenging. So from that perspective, we believe that stocks should continue to trade at around the same kind of valuations.

Second point is that one of the weapons that the government could possibly use to tame inflation is allowing the rupee to appreciate from the current levels, although it could have its own impact on other export sectors like textile, jewellery. In elections, the government might not like the rupee to appreciate in the same way as it allowed it to appreciate in 2008. But this will continue to dock the IT sector, going forward for the next couple of quarters.

Q: What’s your overall call on the markets now? We have corrected quite a bit, but seem to be trading in a range for the last few days, which side do you see breaking from here?

A: I see the environment is fairly challenging going forward. Although we have corrected a bit, I don’t see the market moving up sharply, I think it should be range bound and should continue to trade between a broad range of about 14,500 to around 1,500-2,000 points on the optimistic side, higher form the current levels. So it will continue to bob up between this broad range, until such time that the fiscal stimulus provided in the Budget, will provide stimulus to domestic consumption.

In the last 12-15 months, all the three engines of growth, starting with exports, sharp appreciation of the rupee dented export growth. Second, slowing of domestic consumption. Fiscal stimulus hasn’t yet percolated down in terms of the volume growth for two-wheelers, cars, retail credit growth. Credit growth overall has slowed down from 30% to around 21.6%, so lot of sub-sectors have been constricted in terms of credit concerns. The last bastion to fall has been investments with the kind of slowdown in the IIP numbers and the concerns about order execution not keeping pace with the expectations of analysts, the engineering and the capital goods sector was highly over owned and one has seen a derating happening there.

So all three engines of growth have slowed down and hence I think this would have an impact on the overall GDP numbers for 2008-09. Hence I believe that the environment is fairly challenging, but the global cues don’t continue to help us.

Q: Would you say that the capital goods have corrected significantly to start buying into them or would you wait a little bit for this space?

A: I think, one will have to adopt a case-by-case approach. I think this market is for rigorous bottom of stock picking, the theme based approach or broad brushing and buying a sector or buying a theme is passé and although valuations have come down vis-à-vis 20-23 times one year forward, some of the top rung companies are trading at around 18-20 times, the underlying earnings growth expected in 2008-09 of around 20-25%. But I think one will have to look at those companies, which ensure that there are no time overruns, there are no cost overruns in their project executions, those that have been able to withstand the sharp rise in raw material cost, companies that have been able to hedge properly. So on the balance, the sector does offer a few good picks, but one can’t see the entire sector of capital goods is a buy.

Q: A lot of metals are represented on the Sensex and Nifty, what are you expecting from earnings and how have you read all these talks of price control on one arm of the metal universe?

A: I think the environment globally for steel continues to remain positive because of problems in China. Although there is news about some Japanese steel producers concluding their negotiations with the global miners for coking coal at about USD 200. But in India a large number of companies are fully integrated backward as far as iron ore is concerned. So the demand environment continues to be strong globally and so far as Indian players are concerned, I think we are better off being backward integrated and as SP Tulsian had mentioned, the drop in prices has been in a very small part of the total list of products that the sector offers. So from that perspective, I believe the valuations are attractive. Steel continues to offer good value.

For more Mutual Fund Interviews click here