When six brokerages cut estimates together, one of the big companies would have called saying 'your numbers are very off': Samir Arora

Samir Arora said that 20 percent of their funds, which used to be parked in IT, now isn't allocated to the sector.

When six brokerages cut earnings estimates for a sector at the same time, it indicates weaker earnings ahead, according to Samir Arora.

The founder of Helios Capital was talking to N Mahalakshmi and airing his team’s view on the IT sector.

“Basically we have three big picture themes, which are financials, consumer and IT. But now, for the past one year, we have not had IT and we won’t be having it for another three to six months,” he said.

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“In the last one week, six brokers on the same day downgraded earnings for every company and the sector… how is it that all six downgraded together?”

According to him, “somebody called them” and that somebody is the IT companies themselves.

“One of the big companies would have called saying sorry, sorry, your numbers (analysts’ estimates of earnings) are very off. On the day we announce our results, we don’t want to be seen as massively unperforming (consensus earnings’ estimates)… so please cut (estimates),” he said.

This will help the analysts look smart and the companies won’t look too bad either because, even if they haven’t beaten estimates, they haven’t underperformed too badly.

Arora said that the public and some foreign investors are bullish about the sector but he has seen that the headwinds the sector is seeing currently aren’t those that have a run of only two or three months.

“When things go bad, they go bad for a year at least… If a big company’s results disappoint you for 8 to 12 quarters, it is unlikely that it will come back and say everything is okay in the next quarter. Generally, it takes three to six months to recover from this, maybe reset guidance and expectations, and then some new valuation will come which will look low (and then the opportunity will be there),” he said.

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Arora said that 20 percent of their funds, which used to be parked in IT, now isn't allocated to the sector. When it was pointed out that the funds have been used in new IT, he said that is around 7 to 8 percent of their funds.

“We don’t call Zomato as an IT company, we call it consumer, and we don’t call Paytm as IT, we call it financials… in the other end, it is going to the other two sectors,” he added.