Fairly cautious on IT sector: Girish Pai

In a chat with ET Now, Girish Pai, Head of Research, Centrum Broking Pvt. Ltd., shares his ideas on IT Stocks.

Is the IT trade getting slightly crowded now, TCS, HCL Technologies, these 2 stocks have managed to outperform, do you think now they could stagnate?

Our house call on the IT sector has been fairly cautious while the consensus view on the IT sector has been far more bullish. That is more a structural call. Growth in FY12 is not going to be as strong as in FY11 because there were whole lot of one offs in FY11 which resulted in the very strong growth and margins could be far more impacted vis-à-vis consensus estimates in FY12 because salaries are going to go up lot more and I do not think there is any serious pricing power amongst the companies and there is another element of higher competitive intensity which is coming from plays like Accenture and IBM and HP where they have built out their offshore back ends in a far more robust fashion than one would have anticipated sometime back.

So on a structural basis, we are not so positive but tactically, one should be at least neutral to slightly overweight tech stocks going into the next 3 to 6 months because there is at least some visibility in terms of revenue growth.

Infosys has given at least 18% to 20% revenue growth number. So that is in place whereas I would probably a little worried about interest rates sensitive stocks at least for the next 3 to 6 months considering the way one is seeing rate tightening happening and considering the way inflation is moving. It is not time as yet to shift into interest rates sensitive though the banking sector is a structural buy for me from a longer term perspective but from a tactical standpoint, I would be a little underweight banks right now and maybe slightly overweight the IT pack.

Yes, the results have disappointed the street especially the volume growth has been fairly disappointing and some of the guidance that has been given out by the tier 1 companies has come in as a bit of a disappointment. On a QoQ basis, volume growth is indicated to be fairly muted. So that is what is impacting the stock in the near term but in what I think would be I would say slightly falling market. These stocks will probably hold out in the near term.