Weak rupee to benefit export oriented IT cos: Dipan Mehta

Dipan Mehta, Member, BSE & NSE says, investors should now look at increasing exposure to IT and pharmaceutical companies. Amongst IT companies, it is better to look at export oriented companies that benefit from rupee depreciation rather than domestic companies, he adds.

India's consumer oriented sectors should be on investors' radar, says Mehta in an interview to CNBC-TV18. Also read: Fed meet expectations hitting rupee; 60/$ on cards: Axis Bank Excerpts from his interview on CNBC-TV18 Q: We also haven’t seen as much of a strong reaction as one might in the IT space because of what’s happened with the currency. Do you reckon that valuations and performance will remain quite muted for that pocket? A: IT companies stand to benefit from the currency maybe a quarter or so down the line. We will see a marginal expansion of their operating profit margins. However, rupee depreciation does not benefit them as much as a pick up in the US economy or pick up in offshoring would. Although without doubt it will make the entire proposal of offshoring much more attractive. Rupee depreciation is certainly a positive development in the long run, but not that every company in India will benefit. So, it is better to go with the winners be it from the midcap or the largecap; companies which have been consistently performing over the past four-five quarters irrespective of currency movements, irrespective of all the global economic problems, irrespective of slowdown in US and Europe. The companies which managed to survive all these factors will be winners and will take full advantage of this rupee depreciation. Investors should certainly look at increasing their exposure to IT companies as well as pharmaceutical companies. A few weeks ago, we were all focused on domestic oriented companies but now the time has come to shift the portfolio and again increase exposure to the export oriented companies. These companies will tend to outperform, maybe even take market leadership and offer some sort of safety in these market conditions. The way the rupee is falling, is a scary free fall; it looses 1-1.5 percent in a day or so, without much of effort on anybody’s part. So, we are in midst of a massive correction or decline as far as the rupee is concerned and we need to see that it actually stabilises. Therefore, it is better to look at export oriented companies, which clearly benefit from rupee depreciation rather than the domestic oriented companies which may again get plagued with higher inflation. Q: There has been quite a bit of pressure on some of these consumer stories - Titan Industries and even Jubilant Foodworks. Is it time to buy them yet or do you think these stocks might see lower levels? A: For investors with a three-five year outlook, it is good opportunity to get into these stocks because valuations clearly have come off. However, there is going to be pain in the short term, so the best strategy would be to buy gradually and buy at every decline because the stories are intact as far as three-five year view is concerned. Although from time to time, we see slower growth in such companies but at the end of the day, they are secular growth stories. And at some point of time we will see a pick up in the output and pick up in the consumption. At that point of time, these stocks rally so quickly that it is difficult to catch them. If one is underweight on India’s consumer oriented sectors, then this would be a good time to get slightly equal weight, at least for the time being. One will have to be a bit patient over here because the next two-three quarters are going to be a bit ugly for these companies, especially Titan. Therefore, one should buy a little and then wait for some more bad news to come, and have enough capacity and resources to buy at lower levels. Therefore, it need not be a one shot entry into these stocks but these companies should certainly be on the radar of investors and at various price points lower than this, they will become extremely attractive.