What to expect from IT sector? Is the storm over for Adani stocks? Mayuresh Joshi answers

Mayuresh Joshi, Head Equity, Marketsmith India, says valuations of IT stocks may be expensive but they continue holding a few stocks like Coforge, Infosys, Persistent in their global portfolios. Also, within the Adani group, Adani Ports is one stock that investors can keep on the watch list.

The IT sector is taking quite a bit of beating today. Infosys is down 3.5%. L&T Tech is down over 3%. HCL Tech, Tech Mahindra have run up quite a bit in the last three to four months, but what is the expectation from hereon on IT?
Mayuresh Joshi: Two things are happening here. One, from a results perspective, a large part of the midcap IT basket has performed really well. So, even on a higher base, the expectation in terms of how revenue growth will be in constant currency terms was very stable. The margins were very stable and the commentaries were surprisingly very robust over the next few months and quarters as well.

Valuations and late-stage basis, obviously, is something which is not in favour of midcap IT or largecap IT to a large extent. But earnings will keep on continuing growing at a decent pace. The headwind probably is what Trump might probably do in terms of visa curbs, so on and so forth. We had seen that in the past as well and these companies probably adjusted themselves pretty well.


In case the headcount cost goes higher, if this transpires, as Trump assumes office, the IT companies will take that in stride and hedge themselves against the possible disruptions that can affect them. Valuations are no doubt expensive but we continue holding a few stocks like Coforge, Infosys, Persistent in our global portfolios.

Mahindra and Mahindra is launching cars after cars. When they are not launching cars, they are launching motorcycles and scooters. They are launching cars or scooters. What is happening there?
Mayuresh Joshi: Look at the basket, even within the PV space, the Rs 10 or 12 lakh price tags and vehicles above that are surprisingly held up. Obviously because of the base effect that you are probably seeing, you are going to see some element of stagnation happen over the next few months. But the new launches that Mahindra has done, the kind of features it is offering and the price points at which it is coming at, it is obviously in competition to the entire ecosystem in the PV space, largely dominated by the Tata Nexon at this juncture as we speak.

But to a large extent, the expectation in terms of the demand outlook is stabilising in the first half in terms of volume growth coming back and in expectations of their farm equipment segment actually holding up and offsetting the kind of stagnation one expects to see in the automotive business is something that can hold up the earnings for Mahindra.

Obviously, its subsidiaries on an SOTP basis should continue doing well, both in terms of their IT arm, their finance arm and therefore, on a sum of parts basis, earnings should remain stable. On the core automotive business, the next quarter or two might be sluggish because of the higher base and expectations of recovery coming with the lag effect.

Has the storm come and gone for Adani Group of stocks? If yes, which is the one which you think one should really buy into?
Mayuresh Joshi: Whether the storm has come or not, there might still be some elements in terms of how the elements take place specifically for the entire group itself. But as Nooresh was pointing out, Adani Ports is one stock which might do well going forward as well. Obviously, the kind of numbers that they have been posting so far, we have heard a lot in terms of the mechanization of operations taking place, the acquisitions that they have probably done will also ensure that the mechanization part extends to these acquisitions which means the cost optimization in terms of running the overall operations should relatively get better in the next few quarters and the optionality that comes through in terms of the excess land that they probably have at this juncture adds to the expected valuations that come through.

So, within the group, Adani Ports is one stock that investors can keep on the watch list.

What is the view on PSUs as a pack, especially PSU banks which have started to rally? Would you be comfortable buying afresh in some of the PSU banks?
Mayuresh Joshi: Yes, selectively. Again, if you look at numbers, numbers have been relatively better for the banking system as a whole including PSU banks. A case in point is Bank of Baroda. The expected numbers in terms of deposit growth in terms of NIMs have actually held up for the bank pretty well. The management commentary across the PSU banking universe sounds very positive, specifically in terms of recoveries.

So, what they have provided for in the last few quarters, the asset quality pressure which have clearly come off even in the previous quarter and expectations of recovery add directly to the bottom line and therefore improvement in ROEs and ROAs, the deposit base and the legacy accounts that PSU banks sit on, deposit growth should be reasonable for the banks in general. Therefore, the print that has probably come through last month where deposit growth actually has picked up, can be a huge positive sign. In terms of valuations and base structures as we see it at Marketsmith India, they look very attractive. I think Bank of Baroda, Bank of Maharashtra are something that we keep on continuing holding in our global portfolio.

Honasa is up 10% as is Ujjivan Small Finance Bank. Do you track either or do you have a recommendation on either?
Mayuresh Joshi: No, not really. Honasa had given a set of numbers and therefore, recovery with urban consumption is expected to come down quite significantly. It all depends on how numbers play out. Honestly, we are looking at BFSI rural themes and a few rural manufacturing and infra stories as well.

A couple of ideations that we have kept on our watch list is something like Swaraj Engines. There was a very good set of numbers in the last quarter, the entire proxy to rural India, rural spending through tractors can also be played through Swaraj Engines in terms of volume numbers, PBT, top-line and profitability/

They have hit an all-time high as far as reported numbers are concerned and the expectation is that it might continue doing so. Similarly, within the infra theme Azad Engineering on declines if it does make a base at lower levels, excellent set of numbers, very niche applications that the company probably has and though the valuations might be a tad bit on the higher side, my own sense is competition is very-very restricted to the kind of products that it probably makes and earnings should remain very-very stable.

Wanted to take largecap, midcap, smallcap where would you put your money to work?
Mayuresh Joshi: Selectively, large and midcaps is where the meat of the alpha generation lies, but yes, it’s a mix of both where leadership probably exists.