What should one read in the recent weakness in IT names? Has the reversal in currency taken some profits off the table?
The larger IT firms have approximately 90% to 95% of their currency exposures hedged. So, there is little effect of currency depreciation in their balance-sheet. A larger company like TCS has already seen a large jump in their digital push and it is showing a growth which is fairly fast and large. There is some comfort in the larger IT names after a long time. We typically have been very bullish in the midcap IT space, especially KPIT and Persistent. For the first time, we have added TCS into that list. It looks very bullish from a long-term perspective.
Where exactly is that low beta, low debt space related to commodities where you are investing at this point of time?
All are related to the same stories that we have talked about. We have talked about stories which have been affected by a) GST which means a shift from unorganised to organised; b)affected by DeMo because of again a movement from unorganised to organised. There has been a large push into the rural segment which we are very bullish on.
The stocks that I have been chosen are all consumption-based stocks. There is VIP Industries which is among the largest organised market player. The second one is Marico. We like the rural push that they have managed to give. They have seen a large migration of business because of GST implementation. The last in the space is Bata. because for the first time we see them trying to focus in category 3 and category 4 cities, where they are building up franchise outlets.
All are stories related to Indian population, the growth and the amount of money that they have started spending on branded names. All are non-volatile, fairly safe stocks that we have suggested for the time till March. By then, the entire volatility should die down to some extent.
What do you make of the telecom space? Is it looking interesting or is there still a lot more pain?
The way telecom has played out for the last two years has been led by the amount of money that Jio has pumped in trying to build up an infra. Unless they get a large enough market share, they are not going to be making money which means that the discounts and the push into various segments will be slightly more income generating than their regular voice business. Data business is also going to be there which means that none of the other players will be able to grow unless they bring in large amounts of equity to match up with the might of Jio. The incumbents are going to have a tough time going ahead, trying to protect whatever market share that they have. Jio will keep on pumping the market with various ideas which will lead to price cuts for the regular players in the market. It is a better to avoid this sector. I am not talking about next two quarters alone. This is going to be a slow unfolding over the next couple of years and it is going to be tough.
Any view on Larsen & Toubro?
L&T is a good bet. It remains one of the largest players in that space. They have managed to get their credit cycles under control. There is a large amount of improvement. They have given off margins because of the credit cycles that they used to run and that is going to aid them in the future because that is a much better model. You need to have rollovers which are large in this segment. It remains a strong buy if you have to play the space.