Investors wondering what to do with the Infosys stock should go by the company‘s fundamentals rather be distracted by the ongoing row, feels Gautam Duggad, Head of Research-Institutional Equities at Motilal Oswal Financial Services
Himadri Buch & Shishir Asthana
Investors wondering what to do with the Infosys stock should go by the company’s fundamentals rather be distracted by the ongoing row, feels Gautam Duggad, Head of Research-Institutional Equities at Motilal Oswal Financial Services.
So far, the Infosys stock price has been resilient to the war of words between the company’s founders and the board.
"The noise will settle down; what is relevant for Infosys and IT companies is the way things are shaping up in the technology world,” Duggad said in a free-wheeling chat with Moneycontrol.
The rapid changes in the technology sector is threatening the business models of most Indian IT companies. Duggad, however feels Infosys can weather the storm.
"This is at the bottom end of the P/E(price to earning) range it has traded at in the last ten years," Duggad said, adding, "We are quite positive on Infosys; they are best placed in terms of maneuvering the transformation in the business model and reacting to bigger shifts underway."
In the pecking order, Duggad likes Infosys, HCL Technologies and Tech Mahindra. However, he is bearish on midcap IT stocks, though both large cap and midcap IT companies are trading cheaper than long term averages.
"We feel that the ability of large cap players to handle the whole transformation and the shift that is happening with digital and automation is superior than in the case of midcap companies,” Duggad said.
In general, Duggad is wary of investing in midcap stocks at current prices.
"The premium of mid cap over large caps was 3 percent in December; that has now risen to 12 percent,” Duggad said, adding expected returns did not justify the risk of investing in these stocks.
Given where the valuations are today, Duggad prefers large caps over mid-caps.
Duggad is a follower of the bottom up approach to investing in which the investor focusses on the individual stock rather than the industry or the economy as a whole.
"Over the last few years a top down theme for lot of sectors like FMCG, banks, autos and NBFC worked on account of a fall in interest rates and commodity prices, but by and large we think that it’s a bottom up approach which works better in markets like India," he said.
An avid follower of cricket and politics, Duggad is bullish on the market and confident of a pick up on corporate earnings. He expects interest rate-sensitive sectors such as automobiles, banks, and infrastructure will get a boost from lower interest rates.
There are additional tailwinds in the form of fairly robust macroeconomic indicators and a continued thrust on reforms across sectors.
Duggad finds the Budget estimates quite credible but added that government needs to drive capex in the absence of investments by corporates.
He sees corporate spending picking up only when overall capacity utilization exceeds 80 percent. Currently, the economy is operating at roughly 70 percent of its capacity.
Duggad feels balance sheets of banks in general are far from healthy because of bad loan problems. Adding to the problem is the tepid demand for loans as companies are trying to reduce the debt on their own balance sheet.
Duggad is upbeat on oil & gas, IT, select auto, PSU banks and metal stocks.
He advises investors to pick up 3 or 4 good funds which have delivered good returns over different time periods with lesser volatility and invest systematically.
Duggad likes reading investment books and is currently reading a book named ‘Value Migration: How to Think Several Moves Ahead of the Competition’ by Adrian Slywotzky.
(Disclaimer: Motilal Oswal Financial Services Ltd (MOFSL) and its associates have a financial interest in the securities mentioned above however they do not have actual/ beneficial ownership of 1% or more securities of the subject to the company at the end of Jan 2015.)