After Infosys reported lower-than-expected revenue numbers for Q4, Aadil Ebrahim MD, Bowen Asia feels the Infosys guidance for FY14 is at lower-end and therefore the street has been disappointed. He says a lot of software companies like Oracle, SAP have lower guidance and lower expectations could become common in the street. “TCS could be whacked even further till they trade at a significant premium to Infosys, he says.
Auto industry has been underperforming since past two-three months. Passenger car sales in India fell 7 percent in FY2013, the first such decline in over a decade. "We still believe there is a 10-12 percent secular growth for the next 5 or 10 years within the two-wheeler market especially in the rural markets," he says in an interview to CNBC-TV18
Below is the verbatim transcript of Aadil Ebrahim’s interview on CNBC-TV18
Q: Would you buy Infosys after 20 percent fall or would you say that the patience is now running out?
A: It is a bit disappointing. Going back to Q3, I don’t think it was great, I thought Q2 was very good. But the market reacted to Q3.
The Q4 result are a tad bit lower and the management have admitted that there are some growth concerns and they need to invest, margins are under pressure and their guidance has come in at 6-10 percent.
Now 10 percent (guidance) wouldn’t be a bad year, but they have come in at a lower end that has caused the disappointment in the market. People were all excited after the Q1 even though management had tepid expectations, but that's the street for you.
Q: Would you extrapolate this to the IT sector or would you say the IT sector will render a better account of itself?
A: Yes, that’s a tough one. If you look at global peers, Accenture for example, they had 5-8 percent revenue guidance and they said that will come in at low end. Maybe you are seeing some softening in demand or even Tata Consultancy Services (TCS) who are very bullish talking of 15-20 percent growth, may taper down expectations. You are seeing a lot of software companies like Oracle, SAP coming out with lower guidance. So, the entire street will lower expectations. TCS could be whacked even further till they trade at a significant premium to Infosys.
Q: You have investments in Bajaj Auto as well. What is your call on the two-wheeler space that has seen a bit of pressure and clearly the slowdown is impacting the rural growth?
A: Bajaj’s numbers have been disappointing for the last couple of months. The stock had run up a lot towards the end of last year based on weaker currency of some of the export markets. Sri Lankan export market now seems a bit dodgy, but to get the stock going again you will need to see the domestic rural recovery. If you look at the price points of their vehicles, the cost of ownership versus owning maybe at an entry-level, Maruti is still very attractive to the rural consumers. If inflation does come off, you will see a pick up in demand. We still believe there is a 10-12 percent secular growth for the next 5 or 10 years within the two-wheeler market especially in the rural markets.
Q: Since last few weeks, money is being pulled out among other emerging markets and going off into Nikkei and perhaps the US markets as well. Do you expect this trade to continue? We have seen money been taken out of commodities as well, how will funds flow and what will be the top preferred asset classes for the next 8 weeks?
A: A lot of the money is coming in from Europe and the US. Last couple of months has been diverted towards Japan, a clear laggard over the last 20 years, as well as Nikkei is on fire at the moment. A lot of money that may have come in to India and China has gone into Nikkei. But at the same time, a lot of the Japanese investors looking for yield will invest outside of Japan based on the currency into some of the emerging markets.
I don't believe Japanese investors would be putting significant amount of capital or the retail investors putting capital in Europe and the US. Some of the larger pension funds may do that, but hopefully you will see some pick up from the emerging market from Japanese investors. In 2003-07, a lot of Japanese money flowed into the Indian markets. So, that will start to happen sooner rather than later, but has taken time for the retail investors to be convinced that this yen weakness is going to stay.