"I do not think tightening visa regulation should be a big threat to IT," said Krishnan VR, the Chief of the Quantitative Research team at Marcellus in an interview with Moneycontrol.
According to him, the bigger concern could be potential slowdown in US. In some ways, Nifty IT index which is down 15% over last 3 months, reflects some of this concern, he said.
Krishnan believes, the bull rally in the market, if it takes place this year, is unlikely to be driven by capex-driven plays, especially among capital goods, defence, railways, auto or even metal stocks which have done relatively better over the last 5 years or so.
Where do you see wealth being created (among sectors) in the coming financial year?
Looking at broad valuations there are pockets of opportunities within private banks where you can find well-managed companies with strong fundamentals. India is seeing a structural trend in the financialization of savings where households are investing more in financial assets. We believe this trend should keep retail flows buoyant and also benefit several companies in the broader financial services sectors like brokers, asset management companies, insurance and other intermediaries. Our investing style remains sector and theme agnostic though.
Do you believe that large-cap stocks are in the fair value zone, while mid- and small-cap stocks are still outrageously expensive?
Nifty Small and midcap index price to earnings ratio (PE) are above long-term averages despite the recent correction. However, the small cap and mid cap space in India is quite wide with large dispersion in earnings growth and fundamentals, so it is better to look at individual companies instead of generalizing from aggregate index valuations. Many small, mid cap companies have strong businesses with long growth runways, so higher PE could be justified in many cases.
Is it still better to be cautious when investing in the IT space due to tariff-led uncertainty in the US?
Being service businesses, the threat of direct tariffs is less of a concern for IT services companies. The primary concern could be the tightening of obtaining H1B visa regulations. Having lived through the first Trump presidency, many Indian IT firms, have reduced reliance on H1B visas by increasing local hiring, expanding nearshore delivery centres in Mexico and Canada, and strengthening their offshore presence, so do not think tightening visa regulation should be a big threat atleast to IT. The bigger concern could be a potential slowdown in US. In some ways, Nifty IT index which is down ~15% over the last 3 months, reflects some of this concern.
Which sectors do you think will lead the next bull rally, and why?
I prefer a contrarian investing style over medium term so my best guess is that if there is a bull rally this year, it is unlikely to be driven by capex-driven plays especially among capital goods, defence, railways, auto or even metal stocks which have done relatively better over last 5 years or so.
Instead of broad-brush sector views, we believe investors are better served by individually looking for high quality companies with clean accounts, returns on capital greater than cost of capital for long periods, strong balance sheets, consistent profitability and available at reasonable valuations, across the market cap spectrum.
Do you think the consumption revival in India is still a few months or quarters away?
Difficult to put an exact timeline. Headline inflation declined further in February to a 7-month low of 3.6% YoY, with core CPI also staying benign. If inflation stays at these levels, then there is a case for rate cut by RBI in April and possibly followed by another one in June, which could provide an impetus for consumption. We could also see some potential benefits of the new income tax regime announced in this year’s budget over first half of FY26.
Will FY26 be a far better year than FY25 for equity markets?
I think the direction of corporate earnings and outlook will be among key factors driving Indian equity returns. From a domestic perspective, corporate earnings will partly depend on urban consumption recovery. Markets don’t like uncertainty so if tariff moves escalates to an all-out trade war or if US slips into a recession, then equities could derate reflecting the higher equity risk premium.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.
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