60-70% rally in IT stocks still pending: Sudip Bandyopadhyay

“We probably have seen about 30-40% of the rally in IT, 60-70% of the rally is still pending. It may take some time but it is definitely on the cards,” says Sudip Bandyopadhyay of Inditrade Capital. Edited excerpts:


What do you make of the recovery that we have seen in market?
A few things have happened as far as the global markets are concerned. Firstly, there are hopes that the new variant of the virus is not going to disrupt the economic life in the countries all around us. It is very reassuring as far as global investors are concerned. Secondly, is the US Fed tapering. By and large, the view is that there will not be any major tapering or interest increase effort by the US Fed. Even the base of tapering may be slowed down considering there is some amount of threat as far as the virus-related disruption is concerned; this has created a positive mood.

The global markets have been rallying for some time and that did again have a positive impact on Indian markets. Of course, the central bank’s policy announcements were extremely dovish. There were expectations that there may be some kind of increase in the reverse repo rate but that did not happen. There was the expectation of the growth forecast getting modified, inflation forecast getting increased and none of that happened. In fact, the inflation numbers were brought down and the growth forecast was retained.

Everything points at a very good picture as far as the Indian market is concerned and the market is cheering that. Financial services and BFSI stocks are absolute beneficiaries of this RBI policy so is real estate.

The global tailwinds are also helping the Indian market. There has been interesting developments in pockets, including the crude oil prices which have come down from the highs. So, by and large, things are looking good. How long the rally will continue? Whether it is a Santa Claus rally or will it continue till Christmas and New Year is very difficult to predict at this stage. But, yes, the mood is definitely positive and the bias is positive.

What is your take on IT stocks? Do you see value in them?
Well, we see IT as a multi-year re-rating candidate. The entire process of re-rating of Indian IT companies will continue for maybe four-five more years. We probably have seen about 30-40% of the rally in IT, 60-70% of the rally is still pending. It may take some time but it is definitely on the cards. Indian IT companies are having a great-great time. We have not seen this kind of order book, a positive statement from managements of Indian IT companies. So, yes IT is a very good place to be in.

Now, amongst the companies where you want to be is a kind of a very interesting thing. The large-cap IT stocks do look good for steady and stable returns even at current levels but if one has to pick up one or two stocks, I think we will look at HCL Tech and .

HCL Tech had disappointed the investors in terms of their Q2 earnings and there was some correction there. On a peer comparison basis, it does look very attractive even at current rates. Also, the company’s inherent strength is significant. There were problems in platforms and product business but that is less than 10% of the company’s entire business. So, we were exaggerating the impact on HCL Tech and the correction happened. For an investor, with one year plus time horizon, that is definitely a buy. Wipro, of course, with the change in management, there has been a complete change in outlook and a complete change in strategy which is giving them a good dividend at this stage. We should latch on to Wipro even at current levels. Out of the big four, these two will be my preferred picks at this stage. I am a bit cautious on midcap IT not because they are not good or not doing well, but the fact remains that they are even now looking a little more expensive vis-à-vis large cap IT.

What have you sold in the last month or so?
We have booked profits in some of the FMCG names and advised investors to do the same. This is not because there is a fundamental problem there but they were at a valuation where we thought one can book profits for the time being. Also, among metals, we thought that profit booking was probably warranted particularly in the steel names. But now, the steel stocks have come down quite a bit sharply and maybe it is worth looking at them. JSPL at current levels looks attractive so does Tata Steel. We had also been recommending buying realty names, particularly

as I think the stock is looking very good. They have been gaining market share; they are number one in Pune, number two in NCR, number three in MMR and in all these places, they are gaining market share. Of course, the balance sheet quality, as well as, the pedigree is outstanding; so investors can look at buying them.

The other space where we were sceptical until recently is the automobiles but I think the tide is turning very clearly particularly the players who are getting into the EV segment because that is the future; hence, we are extremely bullish on Mahindra. They have announced their plans for a luxury EV and their plans are moving on the track. Of course, they have a leadership position in tractors and they are getting into farm equipment in a big way. At current valuations, it does look like an extremely good buy for investors who have one-year time horizon in mind.