it stocks outlook: ETMarkets Smart Talk: Investors can play for a catch-up trade in IT sector; Infosys, HCL Tech top picks, says Nirav Sheth

“Markets has consistently overreacted to IT’s earnings prospects during the downturn and when reality dawns – a serious catch-up trade happens,” says Nirav Sheth, CEO-Institutional Equities, Emkay Global Financial Services.

In an interview with ETMarkets, Sheth, said: “Unless the US faces a long and a deep recession, we expect a similar story to play out. Out top picks here are and ” Edited excerpts:

Where do you see markets headed post-Diwali?
The markets peaked out last October and have been trending sideways for the last 12 months. This by itself is a remarkable performance given the serious dislocation in the global bond and currency markets.

We have been surprised by India’s economic resilience amidst these global headwinds and this primarily explains the relative outperformance of equity markets.

Our scuttlebutt analysis reflects strong demand for the festive season though rural demand still remains weak.

We expect the market to remain range bound for the next couple of quarters and a clear directional uptrend is likely sometime in 2023 when the US FED takes a pivot. We are likely to make new highs then.

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What is your take on the recent results from IT sector for the quarter that ended in September? What is your preferred list?
We have been constructive in IT sectors unlike most of our peers and this conviction comes from a deep research on IT’s vulnerabilities to previous cycles.

Markets have consistently overreacted to IT’s earnings prospects during the downturn and when reality dawns – a serious catch-up trade happens.

Unless the US faces a long and deep recession, we expect a similar story to play out. Out top picks here are Infosys and HCL Tech.

What are your big themes for Samvat 2079? Where can investors look for wealth-creating opportunities?
The biggest theme is in sync investment cycle of three pillars – government spending, real estate, and corporate CAPEX.

The latter is driven by a surge in profitability and spending surge by incumbents in disrupted sectors (including ESG-related diversifications).

These investments are key to improving the productive capacity of the economy and thus disinflationary too. PLI templates are well set now though they will take several years to make a dent at a macro level.

How are FIIs looking at India, especially after recent US Fed rate hikes?
FIIs’ aggressive selling totaling nearly $30bn simply preempted the surge in DXY. Of-course high local savings significantly moderated the impact in a way that helps to lower the long-term risk profile of the market.

We believe that we have mostly seen the worst of the selling and a surge in inflows is likely as the US FED pivots next year.

The key risk here is oil prices which remain disconnected from underlying demand/supply dynamics and r driven by geopolitics. That’s the only key risk that can derail India’s story for a couple of years.

What is your take on the rupee? Do you see further depreciation against the US Dollar in the next 12 months or Diwali 2023?
Indian rupee’s move after the recent 3% depreciation will be a mirror image of DXY. We expect minimal intervention by RBI now given that the LAF surplus is thin, and this could impact growth. Between interest rates and currency, we expect RBI to let go of the rupee, though gently.

What are your key learnings from Samvat 2078 and any advice you would likely give investors for this Samvat?
In the last Samvat, if someone has whispered the future in my ear: about Russia/Ukraine war, oil touching $140/bbl, and US bond yields hitting 4% – the prognosis would have been extremely bearish for the Indian equity markets.

Macros are extremely important but so are micros. India’s macro worsened quite a bit, but micros held up well. Focus on both.

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

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