Contrary to popular perception, Edelweiss Securities has a buy on IT sector. The firm predicts that IT will give 15-16 percent returns despite companies like Tech Mahindra and Persistent Systems issuing profit warnings for first quarter this fiscal.
"One thing is very clear that the demand outlook will start bettering only, it will not get worsened off because there is more of technology in every corporation and every country," says Vikas Khemani, CEO at Edelweiss Securities.
Speaking to CNBC-TV18, Khemani says the Indian economy won't be significantly impacted by the Greek crisis as the market is well supported.
Khemani is of the view that 'Indian macros are well in place' which have also kept the market resilient. He said government's efforts of the past year will have a positive impact in the next 2-3 months.
Even in the worst case, he does not see Nifty going below 7,600 level, he adds.
Below is the verbatim transcript of Vikas Khemani's interview with Shereen Bhan on CNBC-TV18.
Q: We saw the markets recover in the second half the trade today and the sense is that this uncertainty is going to prevail but the market is hoping that a last minute deal will be brokered between EU as well as Greece. What is the best case scenario and what is the worst case scenario that the market is factoring in?
A: By and large markets are factoring that- as you rightly said, that some solutions will be worked out and also there is a small possibility that the referendum could be probably yes because the implication of –it is unprecedented, going out will be, exit will be very – I don’t think it has ever happened and implication on the people at large will be very severe, so our view is that probably it will not happen.
Even if it were to happen, the contagion effect will be very limited because if you see, the total 300 billion euro kind of exposure of Greece, the private exposure is by and large only limited to 45-50 million euro, hence the implication of that will very limited by and large on the financial system and hence it will be very limited.
So, once the event is out- what happens is when something is awaited for long, then once it is over, it is over and the market takes a sigh of relief and the business as usual happens and our belief is that once July 5 passes and the outcome comes, market will get used to the new reality. Maybe there might be a reaction immediately based on whatever the outcome is but one is in general global market and second is the Indian market.
Q: So do you believe support will come in at these levels as we saw today?
A: Yes, it will be very limited and impact on Indian economy by and large is expected to be very insignificant.
Q: Today’s turnaround was lead by the blue chip stocks, would you say that this is a good time to look at reviewing positions as far as those particular counters are concerned- the likes of L&T etc which actually drove the markets higher today or do you believe at this point in time, let the event pass and then perhaps look at reentering the market?
A: I do believe that if market gives you any opportunity if correction happens like it happens today and it might happen may be in the weeks to come, that will be great opportunity to enter because as far as the Indian macros are concerned, they are very well in place. Interest rates are coming down; capital expenditure is beginning to happen, whatever government has done in last one year, impact of that will begin to reflect in the corporate earnings.
So, our belief is that probably this will be next one or two months. One is this and then Fed rate issue might again come back so, these kind of events will be great opportunity to buy because we do not see many risks to the Indian story per se and once the global events start settling down and they are over, then probably investors will again come back.
Q: Well yes it has been resilient and that resilience has been proven today as well but specifically speaking of the technology sector because following Tech Mahindra we have now seen the third company issue in a sense a profit warning so to speak. What is the outlook now as far as technology is concerned especially since it is linked so closely to what happens as far as global markets and the global economy goes and of course the currency volatility?
A: Our belief is that US is doing very well, Europe side there might be concerns as far as the demand is concerned hence the growth outlook is at best 12-14 percent but given the valuations of those companies, they are not very expensive, so if 12-15 percent kind of earnings growth which by and large most of the companies are guiding and at 15-16 times multiple, it is not very expensive, balance sheets are very well in place, so we think the technology sector will give 15-16 percent kind of return in normal situation even if the current situation prevails because one thing is very clear that the demand outlook will start bettering only, it will not get worsened off because there is more of technology in every corporation and every country hence it is only said to improve that right now we are going through a transitionary phase of going from the traditional ADM business to
Q: So would you buy tech at this point?
A: We would buy, we would be positive on the technology sector.
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