In an interview with Moneycontrol, Sonam Srivastava, the Founder of Wright Research, asserts that the present situation in the technology industry offers a combination of both opportunities and challenges.
Investors should maintain a cautious approach, considering company-specific fundamentals, the broader market dynamics, and evolving global economic factors, she advised.
She feels there may be some buoyancy in technology stocks post Q2 FY24, largely due to a perceived rebound in the global economy, but it's also important to take note of potential headwinds.
In light of the capex recovery, "midcap & smallcap stocks in manufacturing, banking, infrastructure and related sectors look quite attractive while the valuations of some consumption and technology buckets in the small and midcap space do seem inflated," says Sonam with over 11 years of experience in quantitative research and portfolio management.
Q: Is the equity markets looking overbought now? Do you expect any big correction in the equity markets in the coming months?
Interpreting the current status of India's equity market yields a multifaceted picture. When juxtaposed against emerging markets, our valuations may appear relatively stretched, signaling an overbought condition. Concurrently, we're witnessing some erosion of profit margins, and compared to other emerging economies, our central bank's pace of monetary easing has been somewhat moderate.
However, there's a positive aspect to the narrative as well. India is increasingly under the global investment spotlight, courtesy of appealing demographics, a robust growth trajectory, a potentially depreciating US dollar, and a central bank that's inclined towards accommodation.
The question of whether the equity market is presently overbought, or if there might be a market correction looming, hinges on a diverse set of factors. These include but are not limited to, global and domestic economic conditions, central banks' policy shifts, the performance of corporate earnings, and the general sentiment among investors.
Q: Do you see a healthy environment for steel companies in India now?
Indeed, the environment for steel companies in India currently appears to be promising. The Government's emphasis on infrastructure development, urban expansion, and logistics parks, has led to a surge in demand for steel. Additionally, India's goal of becoming a $5-trillion economy further underscores the pivotal role of the steel industry.
Despite potential short-term hurdles like monsoons and upcoming elections, the overall trajectory is positive. China's recent rate cut announcement has been instrumental in the recovery of global steel prices since May, which bodes well for the Indian steel sector. Additionally, rising steel prices in China could mean a rebound for the Indian steel and iron sector, especially if a stimulus policy leads to increased demand for industrial metals.
Q: Do you expect buying momentum in technology stocks post the second quarter of FY24?
My expectation from the IT sector is rather measured. The recent guidance from Accenture for a lower-than-expected Q4 growth, coupled with the suggestion of pricing pressures in certain flourishing industries, may temper the enthusiasm in the tech sector, particularly for Indian IT companies like TCS, Infosys, Wipro, and HCL Technologies. This also applies to Tier II IT stocks that rely heavily on smaller deals.
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While we may see some buoyancy in technology stocks post Q2 FY24, largely due to a perceived rebound in the global economy, it's also important to take note of potential headwinds. The current scenario presents a mixed bag of opportunities and challenges, and investors should maintain a cautious approach, considering company-specific fundamentals, broader market dynamics, and evolving global economic factors.
Q: Any thoughts on AI (artificial intelligence) theme which has been picking up momentum?
The Artificial Intelligence (AI) theme has definitely been gaining momentum and this trend is likely to continue over the long run. AI is not just a tech story but a transformational trend that is poised to disrupt various industries across the globe. We're witnessing AI's impact everywhere, from healthcare to finance to retail and beyond. As companies strive to improve efficiency, automate processes, and glean insights from massive datasets, investments in AI will become increasingly crucial.
Indian market does not have too many AI focussed stocks but in the global market, the rally in some AI-related stocks appears frenzied and may not reflect the underlying company's fundamentals. AI also has a long way to go with challenges such as regulatory uncertainties, data privacy concerns, and technical complexities that could affect the pace of its adoption.
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Overall, the AI theme is here to stay, and we are only at the beginning of understanding and harnessing its full potential. It's not just about technology companies; AI will be a key component of future growth and efficiency across all sectors.
Q: Is it the time to book profits in midcap and smallcap segments, which have seen significant run-ups in the last three months?
There's no doubt that both small-cap and mid-cap stocks have seen a significant run-up recently, driven by factors such as the domestic capex cycle recovery. The potential for higher returns often comes with a higher risk in these segments of the market, as they can be more volatile than their large-cap counterparts.
In light of the capex recovery, midcap & smallcap stocks in manufacturing, banking, infrastructure and related sectors look quite attractive while the valuations of some consumption and technology buckets in the small and midcap space do seem inflated.
Q: Do you expect a flood of IPOs in the rest of the financial year? Are any names on your radar?
Several IPOs are set to energize the market this fiscal year, riding the momentum of strong past performances and positive market conditions. High-profile firms, including start-ups, are planning to go public and rightly so as the market makes higher highs.
Names on my radar include Mobikwik, an Indian digital wallet company benefiting from the surge in digital payments; Ixigo, an online travel aggregator experiencing robust growth due to the travel industry's recovery post-COVID-19; Oyo, a rapidly expanding hospitality chain, though its business model and governance raise concerns; Tata Technologies, a Tata Group's engineering and IT services firm capitalizing on ongoing digitization trends; and Bajaj Energy, one of India's largest private-sector thermal generation companies, attracting investors seeking stable returns.
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Despite the allure of substantial returns, investors should perform thorough due diligence given the associated risks, and understanding the company's business model, financials, and share price.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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