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Jul 19, 2013, 11.59 AM IST | Source: CNBC-TV18

Religare Capital remains bullish on IT; picks sector bets

Religare Capital Markets is upbeat on Tata Motors and M&M in auto space. He sees FMCG, pharma and IT sectors outperforming in FY14.

Gautam Trivedi, MD & Head of Equities-India, Religare Capital Markets is bullish on IT stocks and expects some amendments to the US immigration bill draft. Many market experts had turned cautious on the IT sector given the impact of this bill on an already ailing Indian IT sector.  Until now IT companies like Infosys , TCS , Hexaware and Mindtree have reported satisfactory numbers in Q1FY14 earnings.

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From the banking space, his preference is titled towards private banks over public sector lenders, but cautions that asset quality remains a major concern for the sector. He feels that the street has been overly bearish on Axis Bank .

The broking firm is upbeat on Tata Motors and M&M in auto space. He sees FMCG, pharma and IT sectors outperforming in FY14.

Below is the verbatim transcript of Gautam Trivedi's interview on CNBC-TV18

Q: In the results season the first few stocks have given us much better-than-expected numbers. Do you think bad news is reserved for the later half of the earnings season?

A: The start has been quite good, the private sector banks and also some of the Non-Banking Financial Companies (NBFC) have announced good numbers and tell a very different story.

The non-performing loan (NPL) problem is not over. It is definitely creeping up even for some of the private sector banks, Kotak Mahindra in particular was not a great set of numbers. But Industrial Development Bank of India (IDBI) is one PSU bank that has declared its number, where the NPL was significantly higher, people will need to see more of the PSUs announce results until we have clarity.

Today, is a big day with Bajaj Auto , Reliance Industries and a bunch of other names declaring results. We are right at the starting point of the results season and it is still early to say how this will pan out.

Q: Is there more upside to Tata Consultancy Services (TCS) despite the fact that the performance has been scintillating?

A: The overall interest in the IT pack remains pretty strong. Our economist and strategist Tirthankar Patnaik was in the US last week and came back with a lot of interesting thoughts. On IT he got the feedback that the Indian IT stocks will actually continue to do well.

The US Immigration Bill which is the big sword hanging on the entire space, not just in India, but overall IT space globally will not be passed entirely as it appears today. A lot of US investors believe that it will finally be a watered down version which will be a big positive for the Indian IT stocks.

Given the rupee depreciation and the fact that if this does come true; i.e. the US Immigration Bill will not be that big a deal, demand remains still a challenge and that does not takeaway the fact that it will remain an issue. But the under-ownership of the Indian IT space augers pretty well right now and we would put our money on the Indian IT stocks.

Q: What about the markets? Is this still a pullback in an otherwise down trending market or do you think because we have broken out of that trading range there is a case for higher upsides in the market now?

A: I do not see a case for higher upside for the market, because a lot of the international funds have very limited interest in emerging markets (EM) and of course India. The EM funds in particular remain invested in India and have no real reason to pullout as of now, the rupee being a major cause of concern for everyone.

The EM funds at least for the time being seem to be pretty resilient and still find India attractive despite all the issues that we have on the ground here, still find it more attractive than other EMs i.e. Brazil, Russia or China. So, that is a positive.

The other way to look at this market is that in absolute terms from a domestic investor perspective, whether it is institutional investor or retail given the issues with the economy, given the fact that we are going to have one of our slowest growths in decades the absolute index level unfortunately is still extremely high.

You only have a bunch of stocks that are holding up the index, but the absolute index level has kept a lot of people out of the market. Lot of the high networth individuals (HNI) still continue to stay away from the market given the fact that the index is where it is. From a foreign institutional investor (FII) perspective, over the last 5-5.5 years, the actual market in dollars is down 35 percent.

You can take that two ways, one, people say we have not really made any money in India, but for people who are looking at deploying fresh money this is a pretty attractive level. So it is attractive from an FII level, not so attractive from a domestic level.

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