Hemant Shah, Fund Manager, Seven Islands, PMS, says the triggers are the numbers, the results, and the guidance going forward by the management and the US is going to play the key role in determining the future of the IT sector and it is widely owned, see it is widely owned by institutions. The follow-up is not there because it is quite widely owned and the trigger for the industry based on just TCS results has taken the whole IT sector a little bit by surprise
Every time we have seen that private banks and IT are getting ready for a comeback, that has run into resistance. For example, there was a good move in IT on Friday but on Monday, there was no follow-up buying. There were a couple of days of good gains in HDFC Bank but no follow-up buying. Why is this happening? Why is the private end of the market which is loved by institutional investors not bouncing back?
Hemant Shah: The bump-up that we saw last for IT was the result of TCS result and commentary and the underperformance of the IT sector till then. Now the gap of underperformance is getting negated. So, yesterday was the IT, today is the PSU banks. The triggers are the numbers, the results, and the guidance going forward by the management and the US is going to play the key role in determining the future of the IT sector and it is widely owned, see it is widely owned by institutions.
So, as you rightly said, the follow-up is not there because it is quite widely owned and the event is because of results, and the trigger for the industry based on just TCS results has taken the whole IT sector a little bit by surprise. Hence the euphoria of buying for a day, just the trading interest, rather than any institutional interest as of today.
Is there merit in going back to consumption stocks? The monsoon has been great. These stocks have been neglected, everybody knows these are great businesses, but growth was not there, so other stocks started coming back. Is it time to look on the other side of the fence now?
Hemant Shah: I think this is the right time. These stocks have underperformed in respect of stock appreciation, but they have been doing well. Even in the bad times, all the FMCG companies have delivered the numbers and since the monsoon is good. I think it will help them to grow their business to much scalable this thing because the underlying business strength is amazing, they just have to capitalise on the growth and they are ready for it.
I am sure the future for FMCG stocks is definitely for a brighter future in the next at least, one-and-a-half year for sure.
What about the consumption space? You also have to watch out for the auto sector. Last week, that entire sector was in the news for various reasons. There could be some policy changes in various states, and then there was news about companies going ahead and cutting prices. Some of them are offering discounts. What is your outlook on the auto sector? Are you witnessing some sort of a slowdown creeping in or it is just a blip that has come in given the fact that May and June sales not being up to the mark?
Hemant Shah: As you rightly said, all the companies are offering hefty discounts and that is what the reason is for the inventory pileup. But let us divide the auto into two parts. One is for tractor, CV, and PV. So, the PV, passenger vehicle market is having some inventory backup and pileup, that is where the discounts are going on.
The CV and the tractor segments have not done well in the last two years. These are going to be compensated in respect of the auto basket per se. I think tractors and CVs will do well. PV is just a short-term phenomenon. After July, and August, the sales will start to stabilise first and pick up. But for auto, the export demand is going to drive growth for all these companies, including the ancillaries. So, I am quite positive on the tractor and CV sector per se for the time being.
