Do midcaps make a better bet among IT stocks now? Deven Choksey explains

“ The selloff in IT is taking place largely also because of the fact that the market is going nowhere. The heavyweights are owned by the ETFs and they ultimately want to make some cash out of it,” says Deven Choksey, MD, KRChoksey Holdings Pvt. Ltd

Walk us through what you have made with the rout that we witnessed within the IT space?
I guess sometimes in the market, the fundamentals are neglected and the market is heavy with technicals. Yesterday was such a day, I guess, especially in names like Infosys and the IT stocks I guess. The fundamentals are very strong in these businesses and these businesses are likely to show relatively steadier growth going forward as well. Unfortunately, the market prices have gone down and there has to be a reason for it.

My understanding is that technically some of the traders are not seeing a pretty picture about the market as an overall and as a result of which, the current selloff is taking place and money is being taken out from the market. The selloff is taking place largely also because of the fact that the market is going nowhere. The heavyweights are owned by the ETFs and they ultimately want to make some cash out of it so that they can buy at a later date. Maybe inflation, maybe the global geopolitical situation – for all these reasons, the technical aspects of the market is weak and money is being systematically pulled out by global traders.


That is probably the reason why some of the heavyweights in spite of strong fundamentals are going down. In my view, in this downward journey, the fundamental potential remains extremely strong. Investors will come in and they would look for some near-term technical support to buy. So, that would be one area among the IT stocks to look out for as the strength of the business remains extremely convincing and very strong.

We have seen a big correction in Infosys. Are you expecting a rub-off effect in midcaps as well?
For the IT sector, there is a distinctly improving business conviction. On one hand, TCS and Infosys could record the multi-year contracts of billion dollars and probably every quarter they would add a billion dollar customer into the portfolio.

On the other side, the mid-tier IT companies are growing very significantly with tens of millions dollar customers with multi-year contracts. If they are mid-sized companies, they are still riding customers who are contributing into the business of the company with tens of million dollars. Now this is an important aspect.

MindTree ended up adding about 11 customers in the last quarter and it could be ranging from $1 million to $10-20 million as well and this is giving a good amount of visibility. As I see it, corrective market prices due to sentimental reasons could be a buy opportunity. TCS, Infosys could get victimised because of the selloff happening because of the ETFs of the world taking out money, but mid-tier IT companies remain relatively stronger on that front and end up attracting the investments. So currently the valuations are expensive but some of the companies are likely to show relatively higher to sustainably higher performance going forward.

What about the unlock trade? Share prices of PVR, Inox to QSR stocks are going up. How would you approach these stocks now?
There is a clear understanding that with a greater degree of vaccination, we are likely to see higher immunity levels in our country. I think the unlock trades will probably survive better as economic opens up and as more action takes place on the ground.

The consumption levels have started increasing, people have been buying different experiences including the travel experiences. We are likely to see the surge continuing. Revenge travel has already helped the hotel industry in particular.

Maybe the froth will come down after a while as economic activity stays sustainable and is likely to remain at higher levels. Even if another Covid wave starts, the situation is not looking as scary as it was in the first and second wave. We are relatively safe.