This could be the year for Indian IT sector: Dipan Mehta

The Indian equity market is in the midst of a bull run, said Dipan Mehta, Member BSE & NSE. Speaking to CNBC-TV18, Mehta added Nifty may touch 8,000 levels going forward. With good earnings from companies in sectors like information technology, cement, auto, pharma and FMCG, investors have a huge trading opportunity.On the upcoming initial public offerings (IPOs), Mehta said there are far better choices for traders now, which can help them buid a stronger portfolio. However, he recommended investing in companies only a year after they list.The digital space is seeing traction and is growing faster than other traditional businesses. Calling this a good year for IT services, Mehta says revenue pie of these companies is improving owing to higher volumes growth and currency depreciation.Below is the verbatim transcript of Dipan Mehta’s interview with Latha Venkatesh & Ekta Batra on CNBC-TV18.Latha: Do you think 7,950 is giving an indication of a market that has fully valued the good news?A: In don’t think so, I think that the market has some more strength and as and when the positive new flow comes to be it earnings, be it interest rates or even monsoon for that matter this market could climb higher and higher. Liquiditywise, I think it is looking pretty strong. We are seeing decent foreign institutional investors (FII) flows coming in and with local investors also the sentiment is gradually improving with a clear cut turnaround which has taken place in stock prices over the past month or so. Latha: Since you sound positive where do you think the strength coming from? After all the fourth quarter numbers are going to be a little difficult. As well now the global markets are giving us a sense that at least for the near term they are going to take profit. So, do you think that 8,000 is going to take a long time coming?A: I don’t think so, I think as the summer goes by and we see the early rains coming through and I am quite hopeful on this earnings season as well. I do feel that the markets could cross 8,000 over the next few weeks or so. You could easily rally four-five percent from the present levels over the next quarter or so. In our view I think the midcap Index could touch a new high in the next three-four months or so. So, it is very difficult to give a forecast for the next week or month or so. On the whole the entire foundation, the set-up and the whole looks quite positive at this point of time.What I like best is that many sectors are opening up; the early results which came from IT were decent. It means that a whole host of IT companies, largecap, midcap which have been underperforming for a large part of last year they suddenly became quite interesting. From investment perspective could be one year two year investment horizon as well over there. Then we have cement which has picked up. Entire auto, two-wheeler, four-wheeler, commercial vehicle is doing better. Pharmaceutical despite its issues will come out with decent set of numbers wherever the problems are not there. Indian FMCG will start doing better because of better monsoon, so there are many sectors and many companies which so far have been stagnating or declining. They suddenly open for investment and provide lot of choice to investors as well.Primary market, also is looking good with many new issuances and even on listing decent returns have come through, so we are in the midst of a decent bull market over here. Unless there is another crisis in the global financial markets I think what gains we have seen in last four-five weeks or so we will be able to build on the gains. Do keep in mind the technicals also have certainly improved for the markets.Ekta: We have a couple of new IPOs which are going to start hitting the markets. We have Thyrocare Technologies, Ujjivan Financial Services as well as now HDFC which has approved its life insurance arm IPO. Your sense, which one would you be most interested in? Which one looks attractive?A: Per se as a matter of discipline we don’t go for IPOs. We wait for a listing for at least a year and then start analysing the company and seeing what the prospects are? However, from whatever I have seen many interesting companies have got listed. They provide an access or exposure to investment themes which were earlier not available for investment or even if they were they were just one or two stocks. However, now there is far more choice over there.The quality of corporate governance over there, the past track record and what returns they have delivered to the venture capitalist or the private equity shareholders over there is quite impressive. So, what I am trying to get at is that there is far more choice for investors. As it is we are a great choice in Indian market but that choice is keeping on improving and that is where you can get the returns on a portfolio. Just a few sectors doing well or a few companies do well that trade gets crowded. However, many more companies, many more sectors open up and give you that kind of fundamental conviction that they can deliver 15-20 percent returns that is a sign of a good bull market. That is the sign that investor can really get good returns in a market like this. Latha: Equitas Holdings is going at 2.3 times their nine months book. That is a tall number. Now you have even Ujjivan, at least Equitas had some kind of a scarcity value now that may disappear a bit with Ujjivan also coming close on yields. So, suppose it list at the issue price Rs 109-110 would that be a day to sell the Equitas stock? How do you value it?A: I don’t know much about the company as I said we don’t track the IPOs. However, my sense is that it still cheaper than SKS Microfinance. That becomes the benchmark, for entire sector SKS Micro is going to be the leader over there. That valuation gap can only perhaps narrow. Latha: What did you make of Tata Consultancy Service (TCS)? The numbers have come on the day when the IT Index itself is not getting a look-in will you buy TCS and Mindtree that looked good?A: First Mindtree because we have a vested interest in the stock and we were pleasantly surprised with the numbers after giving a profit warning. The management sounded very upbeat on the concall. Even TCS was better than what we were expecting and so far whatever has come through from the three results is that digital finally is getting traction. It is growing faster than the traditional businesses and the pie of the digital within the revenues is increasing quite rapidly. So, it could be a decent growth driver going forward for the current fiscal year. I have been negative on largecap IT, I have been very selective on midcap IT so far but so far whatever I have seen from the three companies and may be a few more which will come through I think that this could be a good year for Indian IT services. They are the benefit of sort of flattish base of last year and with currency favouring these companies, volume growth also picking up cost coming under control especially as far as increments are concerned I think it could be a good year for IT. That is what I am trying to say that one more sector opens up for investment for us and early if we were ignoring largecap IT and most of the midcap IT now all these companies certainly start look interesting and look that they could give may be 15-20 percent return over the next 12-18 months or so. Ekta: You are not convinced by the rally that we have seen in metal stocks?A: Not at all, I think it is a great opportunity to exit out of commodities and investors should take this opportunity because clearly the long-term fundamentals are still under cloud and over capacity and lower prices will persist for a long period of time.