Slowing global economic growth has been hurting Indian IT companies’ earnings. But Infosys is better placed than TCS to win large deals which will provide better growth visibility ahead, Paras Bothra, President of Equity Research, Ashika Group of Companies, said in an interview with Moneycontrol’s Kshitij Anand.
Q) Indian market rose marginally in the week gone by but do you think that we are out of the woods. What should be the trading strategy of investors for the rest of the October series and important levels to track?
A) A host of negative news has been haunting the market in the past couple of weeks thus restraining the market momentum. Globally, uncertainties like Brexit and delay in resolution of the US-China trade war are major overhangs for the market going ahead.
Back home, a new set of corporate defaults and the PMC crisis spooked the investors’ confidence. In addition to the above factors, global rating agencies fear that the present slowdown could be related to long-lasting factors.
Despite corporate tax rate cut by the government, the market failed to hold on to substantial gains registered earlier, partly in anticipation of subdued Q2 corporate earnings growth and partly because of sour sentiment in the financial sector.
Due to exceptional volatility (which is almost double than the normal), Nifty is expected to trade in a broader range between 10,778-11,720 till October 31.
Q) Do you think any adverse decision on the trade war front over the weekend could put bulls on the back foot? We have seen plenty of volatility in the week gone by already due to trade war rhetoric?
A) The fear of trade war has been affecting the sentiment of Indian markets in the last one and a half year, and the negotiations between US and China have gone into 13 rounds without any major conclusions.
This made the market volatile and created uncertainty among the investors' community over a considerable period. The resolution of the trade war will hold the key for an upgrade of global economic growth as well as positive momentum in global equities markets.
Q) Plenty of stocks have slipped from their 52-week highs in the S&P BSE 500 index since September 20 (breakout). What should be the selection criteria of investors in picking stocks?
A) Most of the stocks in BSE 500 index have wiped off the gains since September 20 on the backdrop of renewed fear of corporate defaults, PMC crisis and expectation of subdued Q2 earnings growth for corporate India.
Thus, it is better to stick to quality companies with a strong balance sheet, efficient management pedigree, good business moat, and substantial tax gains post the recent cut in the corporate tax rate.
Q) What are your views in Infosys and TCS -- which one is a better bet or investors should move funds to midcap IT?
A) Slowing global economic growth has been hurting Indian IT companies’ earnings. Factors like Brexit, trade war and stringent visa norms have resulted in local hiring in the US and have been impacting IT companies' growth and margins.
Q2FY20 has been disappointing for TCS as the IT major missed the estimates on revenue, profit and margin front. Thus, achieving double-digit growth in FY20 is unlikely to happen for TCS due to headwinds from the Europe BFSI segment.
In contrast, Infosys is better placed to win large deals which will provide better growth visibility ahead.
The concept of rising digitalisation has completely changed the dynamics of the IT industry thus, those companies with a large share of the revenue from the digital business are going to benefit most in the coming days. Thus, odds are in favour of large IT companies having a higher share from digital revenue.
Q) Banking stocks have again back in bear grip due to the news flow and asset quality woes. What are your view and how should investors approach this sector now?
A) Although, minor asset quality hiccups have surfaced recently for listed banking space. However, these incremental issues would not be large and probably could be taken care of through adequate provisioning by banks.
Large ticket size NPAs have all been majorly recognized in the last two years which are going through resolution in IBC/NCLT.
Large private banks are going to benefit at the cost of weaker banks with a lot of NPA issues and capital constraints.
Hence, large banks with efficient management and controlled NPAs are going to be key beneficiaries of this financial crisis witnessed in the last couple of years.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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