Sensex | Useful: ETMarkets Smart Talk: IT and PSU Banks Could Become the Dark Horse of Samvat 2079: Rahul Shah

“I think IT is one such sector where there have been a lot of corrections recently and where stocks with NAV of Rs 100 could trade at Rs 70 or below,” said Rahul Shah, Co-Head of Research, Equitymaster. interview with ETMarkets, Shah said, “Another dark horse could be PSU banks, as they have been massively under-performing in recent years.” Edited excerpts:

October, which started strong for D-Street, looks set to face some global headwinds. Do you think Diwali/celebratory cheer could lift the D-Street sentiment? I think sentiments are more of a mixed bag right now.

While investors are very confident in India’s long-term growth story, the short-term global headwinds are proving to be a bit of a damper.

However, if your time horizon is long-term and you’re willing to suffer short-term volatility, this is a good term to build a long-term portfolio of fundamentally strong companies trading at attractive valuations.

What is your take on the recent IT sector results for the quarter ended September? What is your favorite list? I think the IT sector has been a pleasant surprise in terms of results. Revenue growth at most large companies has turned out better than expected, while pressure on employee turnover has also eased, keeping both growth and margins healthy.

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This, coupled with attractive valuations, makes the sector a good bet from a 2-3 year perspective. Out of the industry’s individual stocks, I’d recommend the bigger players, provided they trade close to or at a slight premium to their long-term historical valuations.

Smaller or mid-sized players with a proven business model can also be considered, especially those that have beaten 50%-60% of their highs and now offer a huge margin of safety in valuations.

What are your big themes for Samvat 2079? Where can investors look for wealth creation opportunities? There are two ways to look at future opportunities. You can either invest in stocks with a fair value of Rs 100 but due to short term concerns or a reflex reaction, the price has fallen to Rs 70 or below.

I think IT is one such sector where there has been a lot of correction recently and where stocks with NAV of Rs 100 can be traded at Rs 70 or below. Another dark horse could be PSU banks, as they have been massively underperforming in recent years.

Another way to look at future opportunities is to invest in stocks whose fair value could be Rs 100 right now, but is expected to reach Rs 150 or higher within 2-3 years.

This could be because of strong earnings growth potential and massive sector tailwinds. Themes that are expected to do well from this perspective could be defense and capex related sectors such as engineering.

So these could be some of the themes to watch out for regarding Samvat 2079.

Do you see new record highs for Indian markets in Samvat 2079? I think the Indian markets are currently a single engine locomotive with support coming largely from private investors and DIIs.

The question is whether the second engine or the FII’s will fire soon.

If the current recession in the west is anything like the one we’ve had in the past, then things should improve in the coming months.

This could also lead to the return of the FIIs in large numbers as risk money returns to look for greener pastures.

So, unless a great black swan affects the global economy and capital flows, it is very possible that we will see a new high in Samvat 2079.

How do FIIs view India, especially after recent rate hikes by the US Fed? FIIs would be cautious now. While Indian markets are not very expensive, they are not very cheap either. Therefore, the arbitrage opportunity to borrow in US dollars and invest in Indian stocks has become a lot smaller in my opinion.

What’s more, after the interest rate hikes in the US. With more gains to come, sentiment among FIIs toward India is expected to remain subdued.

What is your opinion on the rupee? Do you see a further depreciation against the US dollar in the next 12 months or Diwali 2023? In addition to India’s own weakness in the trade deficit and oil price, the rupee has also come under fire for the aggressive stance of the US Fed and monetary tightening.

Going forward, as both factors are unlikely to decline any time soon, we believe the pressure on the rupee will continue.

What are your key lessons from Samvat 2078 and what advice would you most likely give investors for the next Samvat? too much for them.

A classic example is stocks such as IEX,

and .

Investors would do well to remember that the greedy Mr. Market is a brilliant seller. If you have no idea how much you are willing to pay for a stock, the smooth seller that he is, Mr. Market, convince you to buy the stock at any PE multiple.

He will continue to make up these wonderful stories and assure you that the multiple you pay is not very high.

Therefore, an easy way out of this pitfall is to set an upper limit yourself. Determine the maximum PE you are willing to pay for a stock and stick to it.

You mustn’t give in, no matter how good the fundamentals or how promising the growth of the underlying company is.

(Disclaimer: Recommendations, suggestions, views and opinions of the experts are their own. They do not represent the views of Economic Times)

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