Recovery in key markets like US and Europe and depreciating rupee is seen benefiting information technology shares, A Balasubramanian, CEO, Birla SunLife AMC told CNBC-TV18 today.
Balasubramanian said that confidence in IT companies is coming back with recovery in developed as well as emerging markets. Also any IT company is likely to benefit from rupee-dollar being at 54-55 level, which still has a depreciation bias. All these things are likely to help IT sector.
Although, Birla SunLife holds neutral view on the IT sector. “Purely on the basis of earnings potentials and the outlook on the global economy, our view is neutral to the index with respect to owning in the portfolio,” Balasubramanian said.
It must be noted that after being battered in last week of April, IT shares have recovered. Key IT indexes such as BSE IT and CNX IT have since rallied nearly 6-7 percent.
Below is the verbatim transcript of Balasubramanian’s interview
Q: Before we talk about the market, how are you approaching IT after what’s been an extremely disappointing earnings season but now buying is resuming in that sector.
A: There are two ways in which one should look at this sector. Clearly, the large fortune of this industry is dependent upon the global recovery. We have been seeing actually a bit of confidence coming back with US recovery. Also, some of the other emerging markets globally also are showing some signs of recovery. Attempts are being made everywhere in terms of getting back on the growth path which essentially means that Indian IT companies in some sense would benefit out of this. Secondly, any IT company would be benefiting out of the rupee-dollar being at 54-55 and still having the depreciation bias. All these things in our view would continue to benefit.
Having said that, the market has been smart and even the portfolio managers have been reasonably smart in terms of cleanly bring in the differentiation in terms of stocks selection in the same sectors. Another thing which we believe will drive the growth and most of the economies have to look at right fiscal prudence, the right cost measures and at the same time create the employment with respect to countries. All this will have some bit of positive impact on IT companies, except the issue of H1B Visas for Indian software engineers from US. These are some of the pending decisions which could remain as a hanging sword for this sector. But otherwise, purely on the basis of earnings potentials and the outlook on the global economy, our view is neutral to the index with respect to owning in the portfolio.
Q: What’s the view that the domestic investors are taking. Domestic institutional investors (DII) have been consistent sellers through the course of the last fortnight as have mutual funds to a lesser degree. Are you feeling cautious about the market at these levels of is it that redemption pressure is forcing some of these sales?
A: Not really I think. The DIIs, if you break them into two parts, one is mutual funds and second is insurance companies. When I talk about the mutual fund industries, I think since January of last year, there have not been significant flows. There has been a marginal flow that has been coming into the mutual funds. We have witnessed positive sales in the month of January, we witnessed positive sales in the month of March and the overall redemption pressure too have come down significantly in the last one year. In that sense, I think the mutual funds have been probably marginal net buyers which I would assume. Secondly, in the last many years, it has been a period where whatever the prediction which you could have made actually in the Sensex maybe would have not materialised but there are now expectations.
At the same time, there has been a huge success which the mutual funds industry has created in terms of ability to pick stocks and make money out of that. That’s where I think the portfolio managers do also focus. Having said that, increasingly people are being made aware that instead of taking any kind of cash call or maybe trying to debate what kind of cash one should have in the portfolio, the debate has always been as to what is the kind of stock which you would own which will outperform the market-- within the same sectors and within the broader market. That’s where the mutual funds I assume are the marginal net buyers. But for the insurance companies, it is very difficult to get that number. I will not be able to comment on that but clearly the trend in some sense has been bit of negative.