It doesn't look like cos in IT are de-growing:Franklin Templeton

Radhakrishnan said growing income levels and deepening credit is helping the auto sector. He said the MF is constructive and positive on tractor-exposed stocks.

TelecomSeveral experts expect the launch of Reliance Jio to be a game-changer. Radhakrishnan said while telecom stocks have been underperforming, the telecom market is likely to see consolidation in the next 12-24 months.

He said that pricing pressures are bound to happen in telecom with large capacity coming online and that the competitive intensity in the sector has gone up. While there could be a shake-up in market share, both in volume and revenue term, incumbent players have the advantage clients that are used to voice and data and pricing shouldn’t bother them.Below is the transcript of Anand Radhakrishnan’s interview to Latha Venkatesh, Sonia Shenoy and Latha Venkatesh on CNBC-TV18.Latha: You have come to us on a day when the market is hungry for advice. First on IT; it is not as if one did not expect problems in this sector. But this is a bit of a blow – TCS speaking about the Banking, Financial services and Insurance (BFSI) sector and the talk from their clients as of end August, what would you make, would you move away, sell out what you have as well?A: These are near-term headwinds. Clearly, what is happening in UK and other parts of the world, in specific verticals like BFSI have impacted the growth. Having said that, we should have a medium to longer term outlook. We think that while near-term headwinds are now evident and is manifest in the numbers and is also manifested in the stock prices, many of these stocks have not delivered performance over the last year or so. It is not as if they are degrowing. Some of them are delivering a healthy high single-digit, if I may say so, 8-10 percent kind of a revenue growth and probably corresponding profit growth. Which is not in itself bad, but in a relative sense, when people compare it with some other sectors which are growing at let us say where the topline is growing at 20 percent or 15 percent, the relative growth does not look attractive and that kind of makes investors drift away from this sector to more attractive growth opportunities, that is medium-term opportunity.There are certain structural issues like the previous speaker pointed out regarding the longer-term growth, the productivity, the ability to bill their clients at higher rates, those issues are there. But there are also bigger growth opportunities that are coming. There is increasing news of IT, things beyond IT where we are seeing more and more role of information technology in more aspects of the company of any corporation and that would lead to higher and higher spending, more intelligent way of doing businesses. All these things should lead to certain medium to longer term drivers coming into play. But clearly, to look into it, you have to look through the near-term headwinds and that would require a lot of patience and waiting it out.Sonia: You have about a 8.5 percent allocation to the technology space as a sector. Because of the near-term worries and the fact that some of these stocks are over-owned, would you look to reduce your allocation to this sector over the next 3-6 months?A: I am not very sure whether it is over-owned. It is reasonably well-owned, but I do not think they are over-owned. I would rather say that over-ownership in some other sectors like banking and financial services, but not in IT. That is also evident from the fact that the sector has not performed well in terms of stock prices and clearly, that means there has not been much buying in that sector. And therefore, technically I would not say that the sector is heavily owned and 8 percent is not a high exposure if you really ask me. There are times where Indian portfolios have had 25 percent exposure in IT sector. Much like what they have today in financial services, we have had in IT some time back. So relatively, we are significantly underweight at this point of time and if prices correct steeply, we would look to improve out exposure in the sector. Notwithstanding the near-term headwinds in terms of growth, we would like to look at a slightly longer term picture and see whether that story is impacted and if market gives the opportunity, why not.Anuj: One sector where you are clearly more overweight than the index fate, is the auto sector and that has done well. That is almost a leadership sector now along with banking. Do you expect that to continue?A: Today what we are seeing in the economy and the marketplace is some bit of the inverse of what we saw in 2006 and 2007 where when investment led the pack at that time significantly and consumption was not much talked about. Today what we are seeing is a lot of consumption plays are getting prominence in terms of growth and market attractiveness. Automobile is one such sector. We are seeing that in consumer durables, staples and various other consumer oriented plays in the market place and we think that growing income levels, deepening credit availability of more finance and falling interest rates, if I can add, all point out to cyclical recovery in the automobile space, both in passenger vehicles and two-wheelers. Even in tractors, we have a very constructive view. So, we would like to remain very constructive and positive in that sector.Latha: As a fund manager, do you think at these levels, you would prefer a little bit of cash?A: It is tough to find very cheap stocks or very high value stocks at this point of time. Having said that, we need to make the best use of what is available and as a fund house, we do not have a policy of keeping cash beyond 10 percent. Most funds are currently having anywhere between 5 and 7 percent cash. So, our manoeuvrability in that sense is not very high. So, we just have to keep making relative trades, fresh money ideas, some deeply contrarian plays and then wait.Latha: Is public sector undertaking (PSU) bank a contrarian play at this juncture or is the game over there?A: The market is waiting for more guidance from the regulatorial perspective. The enactment of bankruptcy law would be a significant milestone in terms of the evolution of that public sector banking space which would enable the banks to take a more definitive stance with respect to handling their delinquent loans. That is some time away. In the meantime, the retail oriented lending institutions have done pretty well relatively speaking. So, one can say that the relative value of PSU banks from a shorter term perspective would look better when compared to the retail lending private banks.Sonia: I noticed you also have Bharti in lot of your funds as one of your top holdings. What did you make of the new aggressive entrant Reliance Jio in to the market and what kind of impact do you think it could have in the medium-term on some of these incumbents?A: With the large capacity coming on line which was long awaited and in the run-up to this launch we have seen a significant underperformances of telecom stocks both in the run-up and after the introduction of the trial period. Whenever any industries gets a large capacity online we would definitely see some pricing pressure and the new entrant would like to have some meaningful market share.In this case we would see that shift of market share happening from perhaps the weak players in the telecom sector depending upon how the dynamics and the pricing environment play out. We do think that the sector will be forced into a consolidation mode over the next 12-24 months and there will be rearrangement or reallocation of market share partly from the long tail which is there in that sector. May be some amount of market share reallocation may happen from the top three of four incumbents as well towards the new entrant.Having said that as long as this reallocation of market share, revenue market share and business volume market share happens in a orderly manner, in a not a very price disruptive manner we think that should not lead to a dramatic tail spinning of the sector. Our primary hypothesis is that incumbents do have advantage in terms of clients and there are lot of switching cost involved. Clients are used to a particular kind of service both on the voice and the data and pricing alone cannot be a significant push or a pull factor of this clients.We would have to wait and see how these strategies evolve of the players within that sector. However, suffice to say that the competitive intensity of the sector has definitely gone up after three or four years of revenue consolidation.Anuj: No non banking finance companies (NBFCs) in your top holdings. Is that a sector that you are avoiding or are there stock picks that we can’t see in the top holdings?A: We do have exposure to certain NBFCs in our diversified portfolios and mid and small cap portfolios. However, in a largecap oriented portfolio we have stuck to banks. Banks being I would say more rigorously regulated I find more comfort playing companies within that sector. Certain NBFCs are definitely growing very well in this environment and markets have also taken the valuation of these NBFCs to nearly stratospheric levels on them at these levels of valuations.We think that some of the near-term growth will moderate over a medium-term and margins also will come under pressure because of competition in the space and also certain inherent disadvantages on the liability side. We will have to wait and see how the competitive space evolves. However, we are seeing a more and more NBFCs getting into the act, more banks getting into the retail lending act all this thing points to a significant increase in the competitive intensity in some of that spaces in which these NBFC operate.Just to give an example on the NBFC space a year or two back gold loan was domain of the NBFCs and now gold loans are predominantly been given by the banks. Soon as a size becomes big they will get competed with banks and banks have very high cost advantage when it comes to handling some of these verticals and that is the reason why we are little bit cautious.