Experts cite reasonable valuations, along with potential for better returns in a volatile market, as some of the reasons to not look away from IT names.
Though information technology (IT) stocks have faced challenges in the recent past, it may not be prudent for investors to dump them completely, experts told Moneycontrol.
They cite reasonable valuations, along with potential for better returns in a volatile market, as some of the reasons to not look away from IT names.
For the uninitiated, shares of information technology companies have taken a hit in the recent past on the back of an appreciating rupee. In fact, the IT indices on Sensex and Nifty have fallen around 6-7 percent since October 11, 2018. The currency on that day fell to a record low of 74.48 per US dollar.
Here is a look at the chart of BSE IT index between October 31, 2018 and November 22, 2018.
Here are a few factors to be kept in mind while making a call on IT stocks
Analysts such as AK Prabhakar of IDBI Capital believe that the stocks need to be seen with multiple factors in mind. In terms of earnings, analysts had factored in the currency to be around 70-71 per US dollar. Hence, this depreciation is not going to impact earnings estimates much.
Explaining the rationale for a fall in tech stocks, Prabhakar, Head of Research at IDBI Capital told Moneycontrol, “In the US, FAANG (Facebook, Apple, Amazon, Netflix and Google) stocks have taken a beating of over 20 percent. This is leading to a negative effect on Indian IT names as well.” Additionally, global economic growth concerns are hurting these stocks as well, he said.
Prabhakar expects the correction to continue in technology names. “There has already been 5-8 percent fall in IT names and one could wait for further correction to enter such stocks. Infosys, Tech Mahindra and Tata Consultancy Services.
Watch out for extra alpha return
Technical experts see some bounceback in such stocks on the back of sharp fall that has been witnessed in such stocks.
“For investors, we advise hold or add technology stocks to balance and get extra alpha return in such volatile market condition,” said Rahul Kalantri, VP Commodities at Mehta Commodities to Moneycontrol.
The broking firm prefers the likes of TCS and HCL Technologies at current levels as they are currently trading at its 200 DMA. It might act as a good support and may see some bounce in coming days, he added.
The rupee has witnessed a marginal rebound in recent period after hitting a low of 74.48 per US dollar, which was primarily due to surge in crude oil price. Further, a tightening of monetary policy in US Fed coupled with persistent outflow via FPI both in debt and equity segment also contributed to Rupee’s depreciation.
Experts anticipate some kind of a halt in the rupee’s fall and this could put the focus back on IT names.
“However, with macro fundamental reversing in favor of economy and global investors gaining back confidence in Indian market, the rupee is expected to witness strengthen going forward. The RBI’s cohesive approach to stabilize rupee through its open market operations (OMO) by creating supply through liquidity in banking system is likely to support rupee,” Dinesh Rohira, CEO, 5nance.com
For a very short term, Mustafa Nadeem of Epic Research expects negativity on the rupee, with some minor pullbacks. In the medium term, 69 per US dollar could be the target.
Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on Moneycontrol are their own, and not that of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.With inputs from Sunil Shankar MatkarThe Great Diwali Discount!
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