“So against this overall backdrop, now operating margin leverages will kick in as the top line grows. I think this story will repeat itself across the IT pack. And the valuations are okay, earnings growth will start accelerating,” says Chakri Lokapriya, CIO & MD, TCG AMC.
I want to pose this question on the IT sector. We saw the Nifty indexes surging on the back of the IT which has powered the indexes. And this is on the back of the IT results, the results commentary that exceeded expectation. So where do you see Nifty IT heading from now? How are the IT results expected to perform the other IT majors as well?
If you look at IT today, whether it is TCS or Infosys, both the results kind of indicated one thing; financial services as a client base for the IT sector is very important in the U.S. And that kind of slowed down in the last year because of the interest rate hikes in the US. Now, there have been signals from the Fed that they are going to not just pause but start cutting in 2024. So for the reason why IT fell in 2023 is the reason why it will rise in 2024 because orders which were out in the limbo are going to come back alive. TCS is the first beneficiary of that. Infosys, again, will benefit not just from IT, but their new order wins, not just dormant orders but new orders have also shown a pickup.
So against this overall backdrop, now operating margin leverages will kick in as the top line grows. I think this story will repeat itself across the IT pack. And the valuations are okay, earnings growth will start accelerating.
Next week is going to be earnings heavy and HDFC Bank as well as IndusInd Bank are the two banking majors apart from Federal Bank and so they will also come out with their numbers. Any hopes of a great set of numbers there? We have seen their operational updates coming in. They looked pretty decent, not much of a worry there but some reports suggest that this time the NIMs will be the key to watch out for. So do you believe that given the underperformance or the sluggishness in HDFC Bank, that could also get a boost post the earnings this time?
The key word there is a decent set of numbers. I think that we will kind of get. But some of the margin related costs of HDFC Bank will continue to hold back some of its ratios, as well as its growth rates. So given the fact that it is also trading at a valuation which is in line with its marquee status, I think the numbers will be kind of okay, based on the current run rate, etc.
And so I think it is far more to be enthused about the other banks, whether it is the PSU banks because of the strong order inflow that we are seeing in industrials, etc.
And they are the beneficiaries. And on the frontline, ICICI is a steady mix of various kinds of businesses. So I think that is the way we will approach it.
I just wanted to understand your current view on the broader market space because though today on Friday itself we have seen Nifty hitting a fresh record high for itself. And in that a lot of sectors and especially this IT pack has participated in a great fashion. But going ahead keeping earnings in view, as well as the outlook for 2024, do you believe that this time is for the large caps only to perform in a better fashion? And in the small cap and the broader market space where are you eyeing right now? Where is the opportunity that lies ahead you feel?
Going into 2024, I think both the large cap and the broader market will both participate for the reason that the earnings are picking up across the board. You have seen earnings upgrade. This quarter we will see across sectors maybe 2-3%. This is a sign that things are improving.
The reason I think that the broader market will do well is the government’s push in industrials, defence, railways, etc. These are all in the broader market.
Now that push and the order book is not slowing down and therefore you will see very strong earnings growth in that space, industrials, manufacturing, etc. Now on the other hand, the large cap which is let us say the Nifty. Metals are cyclically down. There will probably be some revival. IT is clearly going to be a revival. The large cap banks also the credit growth is about 20% odd going into next year. And I think these are the factors. And banking as a sector is having 70% of the overall credit. Good sign that they are taking market share. So I think the large sector, the large cap does well. The broader market continues to strengthen.
