Consider IT stocks as a global play, to make portfolio look balanced: Ajay Bagga

In a chat with ET Now, market expert Ajay Bagga shares his view on how IT stocks may fare amid the ongoing results season.

ET Now: IT sector has disappointed a bit with results from IT biggies Wipro and HCL Technologies coming in a tad below market expectations. Now, it's Infosys, which is lined up for results on Friday. Do you think that the whole of IT pocket is now approaching the oversold territory? Will IT stocks see more downside or is the sector a structural short for some more months to come?

Ajay Bagga: IT firms may clock a growth of 12-15 per cent on the topline front; expect them to report a similar growth on the bottom line front. As far as margins are concerned, it seems that they do not have much scope for improvement at least in the next 12 months.

Overall, the sector is getting rerated from a high-growth sector to a sector more like utility. Having said that, IT stocks will give you decent returns. There will be no negative surprises; IT firms have managements that are pro-minority shareholders. Looking at these factor , I would recommend investors to look at IT as a global play.

An advisor to the RBI has recently said that rupee is overvalued. He said he would be happy if rupee drops to to 64-65 levels against the greenback.

If this happens, then IT could be a good hedge for Indian investors. Consumers will lose purchasing power once rupee starts falling. Hence, keeping IT in your portfolio will help you.

It is a natural hedge and it is a global growth story. So own IT stocks with that perspective, especially when domestic consumption is getting constraint the way it is. With the poor monsoon, the consumption space could be hurt even more. IT will give you some balance in the portfolio. Having said that, I do not expect them to be top performers.

IT managements are clearly lacking inspirational wisdom. If you look at the US market, they give back $600 billion to shareholders every year via share buybacks. They pay $400 billion in dividends.

If you are doing nothing and keeping surplus cash in fixed deposits or liquid funds at 8 per cent rate, then it is better give it back to the shareholders at least. Here, I am talking about domestic IT companies.