Sector rotation playing out in market. Where should you look for opportunities?
Strong earnings from Accenture will have a strong bearing on the road ahead for the entire Indian IT basket. What do you believe?
This definitely makes one thing clear that Indian BPO industry has a long long way to go. It is in a very strong position and going forward, the BPO industry will see significant growth. It also indicates the kind of demand services the IT industry is seeing. IT is going through a multi-year transformation. It is very clear that the IT industry is in for good times for some time. The focus of course will be on outsourcing digital and new age technologies and that has once again become clear from the earnings of the industry leaders.
Have you taken a look at any of the new IPOs; the ones that are in the pipeline or the two debutants this week?
We liked Shyam Metalics as well as Sona Comstar. Both had their own merits. If I have to advise somebody now that these stocks are listed, Shyam is for a short- to medium-term view because the metal super cycle is on and there are a lot of interesting things happening in the metal space now. So somebody can enter the stock even at current levels post the listing gains but, they have to be nimble. You have to keep watching the space very carefully for incremental gains from current levels.
Sona by and large in terms of the entire components theme is a long-term play. I have been a believer in Indian auto companies for a very long time and I believe that some of the auto component players have a better global footprint and global acceptability vis-à-vis Indian automobile manufacturers. Yes, India is a great market that will do well, but auto components have a better prospect of future growth and becoming global players. That is what is pretty much happening; whether you look at Motherson, and some of the other leading auto components players.
Sona can get there. They have the right ingredients. Somebody with a long-term view of the market can buy Sona. As far as pesticides are concerned, it is a niche play, but in a niche where there is a lot of excitement at this stage, investors can look at buying this for medium- to short-term or maybe even listing gains.
There was a change of guard with respect to . How are you looking at how the company has performed so far with N Chandra being at the helm and what are the challenges that you see ahead?
They have definitely recovered quite a lot of ground. Couple of years back, people were completely bearish. Things have turned around quite a bit. JLR had been doing pretty well even in those days, but after that the pandemic hit JLR volumes as well. But things are looking up as far as JLR is concerned and that does augur very well for Tata Motors.
Domestic market CV cycle pick up will definitely benefit Tata Motors in a big way and we are expecting domestic business to start doing well after a very long time. Also, the new launches on the domestic passenger car segment have shown some traction. Overall, the developments over the past few months have been promising, except their failure to get a CEO in place in time to replace the existing one and that is a little unfortunate. But it has the band strength as well as the strength of the Tata Sons board to guide the company this time. I am sure this absence of the CEO will not have a significant impact.
Otherwise, we are cautiously optimistic on Indian automobile sector and that does include Tata Motors; though Tata Motors has a significant overseas component through JLR and we will have to carefully watch the developments on the global economy front, including China where JLR has a significant presence.
Given the sector rotation that is playing out within the markets, is there any opportunity to buy afresh or anything that you are closely monitoring and keeping on your radar?
Absolutely. There are still buying opportunities and we believe that the domestic economy-facing sectors particularly in the space of infrastructure, construction and capital goods do look good. There is deep value in some of these stocks. The investor should definitely look at Larsen & Toubro. It is a great company and we all know about it. The infrastructure spend of the government private capex is getting revived. With hydrocarbon capex coming back and L&T moving away from unrelated diversification, it all benefits the company and it will definitely show up in their P&L, return ratios, as well as working capital. We have a target of Rs 1,700 on L&T for one year.
We also like
and in a similar way I think they are undoubtedly a great tractor company. Wth agri getting the third consecutive year of good monsoon and rural economy getting a lot of financial benefits out of record agri commodity prices as well as the government benefit transfers, tractor demands are going to definitely go up and investors should definitely look at Mahindra for that. Apart from that, commercial vehicle cycle and SUV demand pick up is on the cards and this also does help Mahindra. Their capital allocation also has improved and they are talking about getting out of unrelated businesses and improving their return ratios too. So that makes Mahindra & Mahindra attractive. We have a target of Rs 1,000 for a one-year period and that also can be acquired by investors at current levels.
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