Will prefer Infy to TCS: BRICS Securities

Excerpts from CNBC - TV18’s exclusive interview with Prabhat Awasthi:

Q: What are your views on technology and the two big boys Infosys and TCS?

A: For Infosys the quarterly numbers was not that great, but the guidance was definitely very good. So we have seen upgrades for next year, which is what is factored into the stock price. So the stock looks good.

For Tata Consultancy Services , if you take out the consolidation of Tata Infotech Ltd , the numbers were all right.  But at this point in time, we would prefer Infosys to TCS

Q: You have said that you are rather bearish on at this point on commodities and metals?

A: We have said that these companies will lead the earnings drag. Last year we had very strong prices especially in steel sector. That has resulted in a base effect.

So in this quarter’s earnings, there will be a drag from these stocks. That is all that we have been saying. We have been positive on steel stocks. What we are saying is that these stocks will drag down overall earnings.

Q: What about the non- ferrous universe because in most of them prices are up almost 25%?

A: Non-ferrous stocks will be decent performers. But in absolute terms, there is a huge difference between steel and non-ferrous companies. The total profit of Steel Authority of India is much larger than all the non-ferrous companies put together. That is providing the down draft on earnings side.

Going forward, next year the comparisons might become better because one has already seen a year of poor steel price. When you go into the next year, one may be looking at better earnings growth from these companies.

Q: What would your rating be on Tisco at Rs 600 because it has rallied quite a bit from its recent lows?

A: In these kinds of markets, we are always chasing stock prices. There is nothing wrong in the steel sector. The prices are still moving up in most of the geographies.

For Indian steel companies, lower coal prices will be an additional benefit next year. So there will be higher pricing from current levels or average levels that we have seen over the last nine months.  The increase in iron ore prices doesn’t affect them.

So next year looks decent for these guys. At this point they have earnings momentum on their side. Globally steel stocks are very well. Most of the steel stocks are at their all time highs. In that sense there is nothing that tells one to go ahead and sell these stocks.

We will have a look at our earnings estimates and price targets. But at this point of time, things are going well for these companies.

Q: What did you make of ONGC’s provisional numbers and are you taking any contrarian call on oil marketing now?

A: Oil and Natural Gas Corporation  numbers are lower than expectations. But we will like to see the actual numbers before we make a comment. For, several times there is a big difference between the provisional numbers and actual numbers.

As far as oil marketing is concerned, there is a structural issue. Overall, we continue to have a negative stand on that sector at this point of time.

The point is that the company’s ability to invest and fight for the market share has gone down tremendously. So at this point of time, we are not too positive on our marketing companies.

Q: What do you expect from the autos and the infrastructures, the two flag bearers in this rally?

A: Infrastructure has very good numbers. There is no bend in the demand. Order books are rising very fast. So in terms of earnings we are pretty positive on most of these stocks. Even though valuations are disconcerting, the fact remains that these companies are growing.

Some of these are having a 50-60% growth rate. The question is whether we are going to see a halt in the cycle at some point of time. But that seems unlikely at least for the next two-three years. So, we are still okay with these companies.

As regards autos, consumption will play out when capex plays out.  We have been positive on these stocks. We are positive on stocks like Maruti , Tata Motors and Mahindra & Mahindra .