Value is emerging in IT, but bottom is yet to come: Nitasha Shankar of Yes Securities

Edited excerpts:

What is your view on the Indian markets? Do you think the Indian market is expensive? Are you looking for an upgrade or downgrade in Nifty after Q4?

From what we are seeing, companies with high certainty of healthy growth (15-20%+) are earning high multiples.

Which is why it may be more of a bottom-up approach that would make sense in the current times of uncertainty.

While there is value emerging in select sectors (such as pharma and textiles), we are generally underweight in FMCG names as their valuations have not corrected following global interest rate movements.

For heavyweight sectors like BFS and IT, we believe the former is worth a lot. For IT, it looks like price is emerging, but we don’t think the bottom is here yet.

We do not have a view on Nifty earnings as of now. But based on the index’s long-term PBV (price-to-book-value) range, we are significantly overvalued (about 2.9 times).

Nifty is trading in an attractive zone given the broad markets view based on long term dividend yield.

There is significant uncertainty around the demand for the IT sector. Should IT Pack be avoided?

While IT pack has improved a lot, we don’t think it is anywhere near its bottom right now.

But if the growth concerns and doomsday stories continue, then the day is not far when one may take an overweight position in this sector.

We believe valuations are likely to move closer (if not to the same level) to 2016-2018 levels. We’re still some time away from there.

This could be due to the high base combined with negative news flow from the developed world.

The global economic slowdown is a major concern. What can be the effect of recession in America on India?

Capital flight remains a concern as FPIs have been quite overweight on the BFSI space for some time now.

This sector has the highest weightage in the benchmark index.

Also with the slowdown in the US, other indices and export-heavy sectors such as the IT sector may see pressure for some time.

This combined with the fact that interest rates in India are stagnant, equity as an asset class may lose its luster.

If FPI pressure intensifies, we imagine that it will be difficult for domestic inflows to be able to support any large FPI outflows this time (as seen in 2021-22).

Value or Growth Stocks – Which to Prefer at This Time?

Value stocks have done well in the last one year. We expect this to continue as long as the trend of rising rates continues.

We don’t think the ‘risk on’ mode (which is essential for momentum play) will make a comeback in the near future.

In any case, we advise investors to emphasize the ‘RP’ in GARP when evaluating investment opportunities from a growth/momentum lens.

What is the way forward for mid and small cap stocks? Should we stick to large caps only till the uncertainty fades away?

If one can tolerate the volatility (on the back of low liquidity), then there is no need to stay away from small and midcaps.

Major companies in smaller industries would also be classified as smallcaps.

As long as the business is sound and available at good valuations, one can consider investing in it.

Goes without saying, an investor should do his/her homework thoroughly before investing in such names.

CPI inflation in US and India moderated on expected lines in March 2023. RBI expects inflation to be below 6% in FY24. Do you see any possibility of further rate cuts?

It is difficult to say that the RBI itself is adopting a wait-and-watch policy. We do not expect any rate cut in the near future.

Disclaimer: The views and recommendations given in this interview are those of the expert. These do not represent the views of Mint. We advise investors to do due diligence with certified experts before making any investment decision.