We are on the sideline on IT; constructive on banks: Anshul Saigal

So combined with an earnings upgrade, we have seen valuations uptick in this space. As the world talks of recession; we are seeing inflationary pressures hitting a lot of companies globally and these are the companies with which Indian IT companies do business. Now for them, IT is a discretionary spend and when they are seeing cuts on earnings, the first space that they look to cut in terms of spends is going to be IT.

Even if they do not cut IT spending, the perception that they will cut spending on IT is going to impact multiples and so in our judgement, there is every possibility that we will see earnings cuts as also multiple cuts further in the IT space.

For that reason, this is a time to be cautious in IT even though there has been a significant downdraught that the IT sector has seen. But despite that, we would stay on the sidelines at this time and not rush into buying. Sometime in the next 6 to 12 months, IT will become a very attractive bet but just yet we are on the sidelines.

How are you expecting the earnings from some of the big banks to pan out? What is the expectation in terms of the overall environment for credit growth and asset quality concerns for some of the largecap private banks?
As far as credit growth is concerned, we are at a seven-year high. Now that is not completely un-anticipated because we were coming off a very big period for the banking sector in general and for credit growth in particular and we believe that as the economic activity picks up in India, the capex cycle picks up, the consumer comes back, credit growth has only one way to go and that is up. Our belief is while on the business front, most of the banks may see tailwinds on their numbers but because inflationary pressure has impacted yields in the current quarter, there may be an impact on their investment books in the quarter gone by.
If inflation starts cooling off and yields taper off, they remain where they are. Even on the investment book, there may not be further downsides going forward. I am not banking on that but I am just saying that that is a possibility and on the business we do see significant tailwinds for the rest of the year. That tailwind is accelerating for FY24.

So we are constructive on private sector banks. Even PSU banks are seeing significant improvement in their earnings and NPA cycle as well and valuations are undemanding over there. Banking space looks attractive at this time and it is poised for tailwinds going forward.