ET NowIn a chat with ET Now, Sanjay Dongre, EVP & Fund Manager, UTI Mutual Fund, shares his outlook for some sectors. Excerpts:
ET Now: With the warnings coming in from the managements of Infosys as well as TCS, would you now become circumspect on the prospects of IT?
Sanjay Dongre: No. The managements are simply giving their guidance that maybe the near-term growth will be slightly lower than the immediate past. This, again, is of a seasonal nature and not a permanent one. Since the US economy is expected to recover decently in the next 12 months, there are good amount of IT budgets which are likely to be spent on actual orders getting flown to the Indian IT companies. Europe is now showing more inclination or willingness to outsource part of their IT work and the IT companies have witnessed a good amount of growth in the Europe region.
From the commentary of all the major players, it becomes evident that their guidance for FY15 is still better than FY14. Therefore, since the market has been a slave of earnings, as long as the earnings keep strong, the IT sector as a whole should do well over a next 12 months’ horizon.
In between, there might be sector rotations happening in the marketplace and, therefore, for some period of time, there could be volatility in the stock prices. But if FY15 is turning out to be better than FY14, then software as a sector will deliver better than the market returns over the next 12 months period.
ET Now: If the long-term growth story for IT is still intact, do you think IT stocks are now offering a good entry point?
Sanjay Dongre: For an investor with a horizon of 12 months, this is a good entry point into IT. As far as we are concerned, we already have our exposure to the IT sector. We might be churning our exposure from one sector to other sector, but when we look at the IT sector from 12 months’ perspective, I do not think we are going to go underweight anytime soon.
ET Now: Do you believe that it is time to revisit cyclicals or do you believe that recovery has not started and it is too early to buy into cyclicals?
Sanjay Dongre: Over the last three to six months, we had a positive bias towards the cyclical sectors. It is apparent that the investment cycle is bottoming out and going forward the pace of economic recovery will depend on whether we get a reform-oriented stable government. Therefore, surely, the earning traction is going to be lot more visible in the cyclical sector and the valuation, at which most of the cyclical sectors are currently quoting, is much below the historical averages. Therefore, from that point of view, there is an inclination to move towards the cyclical sector.
However, one will have to look at the valuations also. The cyclical sectors, in the last one month may be, are quoting at the historical averages, but it is more on the hope of a PE re-rating.
ET Now: Are you turning bullish on banks?
Sanjay Dongre: If a reform-oriented government manages to step up the pace of economic recovery, then growth itself is going to take care of a lot of problems that today plague these banks. Therefore, growth in the stress asset formation will be lesser and that will again start reflecting in the banking sector. So it is a question of whether the growth comes back into the economy much faster than anticipated.
ET Now: With the warnings coming in from the managements of Infosys as well as TCS, would you now become circumspect on the prospects of IT?
Sanjay Dongre: No. The managements are simply giving their guidance that maybe the near-term growth will be slightly lower than the immediate past. This, again, is of a seasonal nature and not a permanent one. Since the US economy is expected to recover decently in the next 12 months, there are good amount of IT budgets which are likely to be spent on actual orders getting flown to the Indian IT companies. Europe is now showing more inclination or willingness to outsource part of their IT work and the IT companies have witnessed a good amount of growth in the Europe region.
From the commentary of all the major players, it becomes evident that their guidance for FY15 is still better than FY14. Therefore, since the market has been a slave of earnings, as long as the earnings keep strong, the IT sector as a whole should do well over a next 12 months’ horizon.
In between, there might be sector rotations happening in the marketplace and, therefore, for some period of time, there could be volatility in the stock prices. But if FY15 is turning out to be better than FY14, then software as a sector will deliver better than the market returns over the next 12 months period.
ET Now: If the long-term growth story for IT is still intact, do you think IT stocks are now offering a good entry point?
Sanjay Dongre: For an investor with a horizon of 12 months, this is a good entry point into IT. As far as we are concerned, we already have our exposure to the IT sector. We might be churning our exposure from one sector to other sector, but when we look at the IT sector from 12 months’ perspective, I do not think we are going to go underweight anytime soon.
ET Now: Do you believe that it is time to revisit cyclicals or do you believe that recovery has not started and it is too early to buy into cyclicals?
Sanjay Dongre: Over the last three to six months, we had a positive bias towards the cyclical sectors. It is apparent that the investment cycle is bottoming out and going forward the pace of economic recovery will depend on whether we get a reform-oriented stable government. Therefore, surely, the earning traction is going to be lot more visible in the cyclical sector and the valuation, at which most of the cyclical sectors are currently quoting, is much below the historical averages. Therefore, from that point of view, there is an inclination to move towards the cyclical sector.
However, one will have to look at the valuations also. The cyclical sectors, in the last one month may be, are quoting at the historical averages, but it is more on the hope of a PE re-rating.
ET Now: Are you turning bullish on banks?
Sanjay Dongre: If a reform-oriented government manages to step up the pace of economic recovery, then growth itself is going to take care of a lot of problems that today plague these banks. Therefore, growth in the stress asset formation will be lesser and that will again start reflecting in the banking sector. So it is a question of whether the growth comes back into the economy much faster than anticipated.
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