Shyam Sunder Bhat, Chief Investment Officer at Exide Life Insurance Thursday said a recovery sentiment had been visible in the IT sector over the past month.
Speaking to CNBC-TV18, Bhat said he had been underweighing the IT sector for some time, but had added to IT holdings over the past month and revised the stance to 'neutral'.
IT stocks have recently been weighed down over uncertainty about the new US administration's policies on H-1B visas. But Bhat feels IT companies are already accounting for higher costs and gradually aligning their business models accordingly. He said the recovery in the US economy bodes well for the sector.
On news that Tata Consultancy Services is exploring a share buyback, Bhat said it could be a trend going forward.
He said the worst appears to be behind the markets in terms of risks from impact of currency shortage, and it was likely to get increasingly sector and stock specific.
Large retail inflows into financial markets will only get stronger and on a cumulative basis, domestic mutual funds had emerged as bigger buyers than Foreign Institutional Investors over the past three years, he said.
Below is the verbatim transcript of Shyamsunder Bhat's interview to Ekta Batra & Prashant Nair.
Prashant: Does a trajectory from local fund point of view remain strong?
A: Yes, very much so. This trend which we have seen for more than two years now of large retail inflows into the financial markets, we think it is likely to get stronger with time. In fact as an interesting statistics we have also seen that for the past three years on a cumulative basis the domestic mutual funds have emerged as bigger buyers than foreign institutional investors (FIIs) and this is something which has not happened at all in India ever since the FIIs entered into the Indian market on a three year cumulative basis. However, even in terms of some of the proposals which have come in the recent Budget, the thrust is to disincentives savings in physical assets and channelise even more into financial assets. So we think that the trajectory will remain strong. Of course there will be some months when you might see some reduction but on a long-term basis the domestic investors will continue to increase their exposure to equity.
Ekta: How would you approach IT stocks and your thoughts on the Tata Consultancy Services' buyback and whether that reflects on the fact that maybe there is not a lucrative merger and acquisition (M&A) option around in terms of growth?
A: We had been underweight the IT sector for quite a long time till recently. Over the past one month we have added to the holdings in the IT sector and now we are neutral vis-à-vis the index. So the thought process is that one cannot plan or change business models considering the probability of an event happening, for example on the visa front. So while many of the corporate would be prepared for higher cost going forward and aligning their business plans gradually, the recovery in the US economy bodes very well for the IT sector and given the run up in the overall market in the last month or so, the IT sector stocks which had gone the other way till very recently even on relative basis offered quite a bit of comfort and that is the reason why we added to the IT sector.
However, coming to the buyback front, it is not necessarily from the point of view of no lucrative options available in the M&A space but it is possibly also a reflection of the fact that since there is some amount of uncertainty in terms of the way the sector\\'s fortunes will shape up. One is possibly better advised not to go in for larger M&A at this stage and therefore address the other concern for investors which has been that the utilisation of cash on the balance sheet has not been optimum for many of the large IT companies.
So we have already seen two large IT companies announced this and this could well be a trend for some of the other IT companies as well going forward, so that will also add to the recovery and sentiment that we are seeing in the last few days for the sector.