Buy IT stocks on every dip; avoid NBFCs for now: Nischal Maheshwari

Nischal Maheshwari, Market Expert, says BFSI accounts for more than 50% of revenues for most of the IT companies. If BFSI starts turning around, it is really good for the IT sector. Also, interest rates cuts have started happening in the US and that is where the discretionary spend should also start going up. So, hold on to your IT stocks. At every dip, IT is a buy.

On the other hand, RBI has given a clear hint to NBFCs to go slow on the growth part. It is best to avoid all the NBFCs for the moment.

What are you making of this extremely volatile market and complete disconnect from what the Western markets are doing – both Europe as well as the US?
Nischal Maheshwari: Some amount of profit-taking is happening in India. Yes, it is a bit of a disconnect. If you compare this, it has been a very solid market as far as the US is concerned and even in Southeast Asia. But here we are seeing some amount of profit-taking, some amount of disappointment as far as earnings are concerned in the current quarter.

Mostly if you really look at it, all the consumption companies have been reporting slightly subdued numbers. Obviously, Bajaj Auto results were really bad. That is taking a bit of pressure onto the market.


What is the view when it comes to Manappuram Finance and some of these gold financiers and the issues that they are going through right now? Is this dip a buying opportunity or just stay away?
Nischal Maheshwari: For the moment, it is a good time to stay away because the RBI is telling them to go slow. Earlier it has been with several other NBFCs also and similarly, here also, for the first time, RBI has picked up MFIs. Asirvad is a 100% subsidiary of Manappuram and now they may be coming after the MFIs also.

So, that is a very clear guidance which RBI has given for going slow on the growth part. In that kind of a scenario where RBI is giving a hint, it is best to avoid all the NBFCs for the moment.

It is early days yet, but is there anything to take away from Axis Bank's performance?
Nischal Maheshwari: No, it’s a bit subdued as far as growth is concerned. Growth was a bit subdued, but they have done very well as far as the quality of assets is concerned. That is why the market is also giving them a thumbs up there. The quality of assets is very good. They have increased the provisions, partially out of the tax break which they have got, so that is why you are seeing good momentum there.

But they are also taking a hint from the RBI for going slow on the asset side. That is why I think they are also going slow. Maybe we will see a similar kind of a trend happening across the whole sector. As the results get done, basically everybody is taking a cue from RBI. The kind of growth which we are seeing on the credit side was really very aggressive in the last few quarters and some amount of moderation was expected and it was happening also.

Friday was marred by regulatory issues or some sort of action coming in on the policy front and I am talking about the CGD space now. The city gas distribution is taking a hit on account of the APM allocation getting cut very sharply. There is coverage on a few of those city gas distribution names. What would you recommend investors to do right now?
Nischal Maheshwari: I have left Centrum, so I am on my own basically, and that is why I do not have any coverage now. It was my previous organisation. But I do understand the space. This is a bit more than what the market was expecting and that is why you have seen this kind of a negative reaction. But this was sort of expected. The amount may be much more than what the market was expecting, but the cut was expected. That is what we are seeing at the moment. But our earlier pick used to be MGL only.

Let’s add a bit more colour in this building material space. The real estate sector itself is doing well. But if you look at the margins coming in, whether it is KEI, Havells, or Polycab, the companies are reporting robust top line growth, but it is not turning into profitability. What should an investor do in this case?
Nischal Maheshwari: So, this may be temporary if you hear most of these calls. They are saying that it maybe is a temporary phase, for a quarter or two. Obviously, the issue remains to be the raw material side where the prices have gone up and that is why, but given that the outlook as far as sales is concerned remains to be robust, I would say remain invested because if you really look at it on the FMCG side, on the other consumption side, the companies are even struggling for the top line.

So, at least in FMEG, the concern is not there as far as growth is concerned. Yes, margins may be a bit tepid for this quarter and the next, but given that you are now getting into the festival season, I see a strong demand and possibly a margin uptick also in the next quarter or two, so remain invested.

Just wanted to get a sense from you as well as to what the overall take is with respect to the IT sector right now because we did hear the management of LTIMindtree talk about how Q3 is going to be a bit more volatile. They are expecting the second half of the year to be a bit under pressure. What is your take on the IT sector?
Nischal Maheshwari: I am very bullish on the IT sector. I think the worst is behind us. Yes, the stocks have run away but we are just seeing the first signs of recovery in the US and if you really look at it, they have put out all the four people andall the four of them have spoken about the BFSI sector doing reasonably well or better than their expectations.

Now, BFSI itself is more than 50% of revenues for most of the companies. So, if that has started turning around, it is really good for the IT sector and we have started seeing interest rates cuts happening, so that is where the discretionary spend should also start going up. So, hold on to your IT. At every dip, IT is a buy.