Moneycontrol
Aug 11, 2017 01:05 PM IST | Source: CNBC-TV18

Strong earnings growth seen in FY19, see good returns in midcap IT stocks: Alchemy

Geopolitical tensions surrounding around North Korea is not expected to escalate further, he feels. It will be short term impact on markets, according to him.

The market today is falling sharply for the fifth consecutive session, which was warranted after one-way rally seen since February.

After rising more than 22 percent in the past six months, the market was waiting for big correction and experts had been cautious. The Sensex fell nearly 3 percent in last four straight sessions while the broader markets were down more than 6 percent. Geopolitical tensions and the release of the list of 331 shell companies by SEBI caused selling pressure.

The market has been waiting for this correction for a long time, especially after one-way rally but it is very difficult to figure out the bottom, Hiren Ved, Director & CIO, Alchemy Capital Management said in an interview with CNBC-TV18.

He sees a lot of opportunities in current correction.

Geopolitical tensions surrounding North Korea is not expected to escalate further, he feels. It will be a short-term impact on markets, according to him.

Recently, some companies’ earnings have seen the impact of demonetisation and GST.

Ved said earnings recovery will start in the next 2-3 quarters (i.e. in the second half of the current financial year (2017-18) and in consequent 2-3 quarters, there would be strong earnings growth on a year-on-year basis.

Alchemy Capital holds a couple of non-banking finance companies in its portfolio. Valuations in these companies are not cheap but if one wants to invest then should take a long-term view.

Big microfinance companies already hit badly by recent problems but hopefully things will get normalised from here on, soon, he feels.

On global luxury car makers like Tata Motors, he said the problem with such companies is that there is no visibility, too many moving parts (like UK, US car markets), hence, too much volatility in EBITDA margin. Generally, people like stability in earnings growth.

On IT stocks, Ved said largecap IT companies always have growth problem. Eventually, they will do better but I think the kind of tech spending they do, definitely there is pressure on margin and topline. One can’t make big money in these large-cap IT stocks, he feels.

According to him, if one can hold midcap IT companies for long term (i.e. 12-24 months), money can be made.
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