Apr 15, 2013, 12.07 PM IST | Source: CNBC-TV18

IT may see de-rating; continue to hold Tata Motors: Alchemy

Hiren Ved, Director & CIO, Alchemy Capital Management expects the market to remain rangebound unless earnings pick-up. “Earnings will keep a lid on the index. We will continue to be range bound for a while,” he said in an interview to CNBC-TV18.

Hiren Ved

Director & CIO, Alchemy Capital Management

Expertise : Equity - Fundamental

More about the Expert...

Disappointing Q4 earnings by index heavy weight Infosys hit the market hard, pushing the Sensex down 300 points on Friday last week.

Hiren Ved, Director & CIO, Alchemy Capital Management expects the market to remain rangebound unless earnings pick-up. “Earnings will keep a lid on the index. We will continue to be range bound for a while,” he said in an interview to CNBC-TV18.

Also Read: Infosys a 'buy', says Motilal Oswal, sets Rs 2700 target

First quarter is seasonally a slow one as far as earnings are concerned, so the market may be biased on the downside going ahead. The soft patch seen in earnings is likely to remain for another quarter or two, he added.

Continuing his bearish tone on IT sector, he cautioned that the sector may be headed for a de-rating in days to come.

However, he feels IT giant Infosys problem is company specific and one should wait for Tata Consultancy Services ( TCS ) to announce its Q4 earnings before taking a call on the IT sector, he added.

Meanwhile, Ved holds his bullish stance on auto major Tata Motors , he feels Good performance by Jaguar Land Rover (JLR) is making the stock attractive.

Valuations are very reasonable. There is potential for the company to standout in this kind of a difficult environment. With many new models coming in in JLR, we will continue to see good momentum,” he elaborated.

Below is the verbatim transcript of Hiren Ved's interview on CNBC-TV18

Q: How would you approach Infosys and the IT sector now after what you have heard on Friday?

A: I would still like to believe that it is a company specific issue and would wait for the TCS results to come out to take a broader call on the IT sector. We are going to see far more volatility on a quarter-on-quarter basis in IT companies than what we saw in the past when there was a secular growth in the sector.

People used to extrapolate what happened the previous quarter and try to judge what the next quarter is likely to be. So, you will see divergence even amongst the IT companies in terms of performance and higher volatility in the quarterly results. We will see some de-rating of the sector and then people will have to take a call on name-to-name basis rather than trying to take sector call as a whole.

Q: The problem is that this was one of the few sectors helping the market stay afloat. Would you expect to see more pressure on the market because of what happened with Infosys and the turn in mood towards IT?

A: When you have such a large company with a significant index weight and most institutional investors having some kind of exposure to a company like that and the company does not deliver, it definitely puts pressure on the market. So the trend that we have been seeing over the last few quarters is that the market is getting more and more narrow. It will continue to be the case, until we see the broader market earnings bottom out and start to move up again and that is still sometime away. So, the market is going to get even more narrow and that will keep a lid on the index and we will continue to be range bound for a while.

Q: With the base around, do you foresee more pressure on the market?

A: The Q4 earnings season is generally a better quarter, but this time the earnings are not going to be too great. We are going to see one of those fourth quarters that will be pretty low in terms of revenue growth, profits and margins as well. Q1 is also seasonally a slow quarter, so there could be a downward bias to the market. We might consolidate here for a while till the earnings season is on and then people will take a call after they have seen most of the large earnings in this quarter. We are going to see a soft patch for one or two quarters more.

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