Opportunity in largecaps and midcaps IT stocks: Chandresh, Axis Bank AMC

Chandresh from Axis Bank AMC, in an interview with ET Now, gives his views on IT space. Excerpts:-



ET Now: What is your view on the IT sector? Is your approach selective - bottom up or top down right now?

Chandresh: Investing for us is completely a bottom up exercise. So it is completely selective. As far as the sector goes, while we do know that there are certain challenges currently -- global growth is not really supportive of the IT sector and growth is challenging -- we do believe over the next year or so, we would start to see some improvement as large corporations start to invest.

Right now people are not really investing, plus uncertainty in global markets and the economy because of eurozone problems and worries about China will be behind us. From an Indian company's perspective, there are significant opportunities to gain market share globally. Also, valuations in these stocks have really come off because these stocks have virtually done nothing over the last two years. It is a good long-term sector to invest in while we are slightly underweight from a top down perspective. Bottom up, we are holding what we like from a long-term perspective.

ET Now: It is quite ironical that in the last one quarter even though the rupee has depreciated against the dollar, IT stocks have done precious little. So risk versus reward, what is your opinion when it comes to IT largecaps?

Chandresh: You are right. The nature of the business is such that these companies, especially the large ones, do generate a lot of cash and that is what makes it attractive for investors like us. How will they utilise the cash? Ideally, we would certainly like them to return it in the form of dividends or buybacks, but we do realise that business has become a lot more cyclical and growth has certainly become more volatile. There could be periods of stress and people would like to hold down cash. We (are) kind of comfortable with the kind of cash people are holding though we know that some people have excess cash which we would be very happy to get back.

ET Now: Is the IT sector play on earnings which seem subdued or a play on the currency then?

Chandresh: You kind of got it right on both counts. Long-term growth story still exists. The valuations from a long-term perspective are reasonable. In the short run, they will certainly act as hedges or you can say insurance for the portfolio in case the rupee really depreciates or something happens to oil. These will certainly be uncorrelated to the rest of the markets.

ET Now: The BFSI vertical, which is more like a bread and butter vertical for largecap IT companies, has been sluggish. Do you think that could be a big impediment for largecap IT companies in the short term?

Chandresh: It is already visible. If you look at the last quarter people did face some challenges in the BFSI segment so part of it is already there. Can it turn much worse? I think yes with the kind of news which is happening specially from the Eurozone. There is a chance that it may come off, however, when you are looking at investing in businesses you do need to take a slightly longer term call especially if the valuations are not that demanding and that is the position we are taking that while this will be a cycle which will play out over the next 6 to 12 months subsequently the kind of regulations which are coming into place will actually make the financial sector or the BFSI sector to actually invest more in IT and systems.