Not interested in Infosys, TCS and other IT biggies: Vivek Mahajan, Aditya Birla Money

In a chat with ET Now, Vivek Mahajan, Aditya Birla Money, says they maybe a trading play but definitely not an investment play. There will be much better options available outside these top five companies. Edited excerpts



ET Now: Discussing the prospects of IT and how company specific it has become. While Infy has delivered so well, for HCL Technologies, its not just a case of earnings miss but also the future trajectory does not look all that healthy. How should an investor approach IT as a sector now?

Vivek Mahajan: I have got a contrarian view as far as the IT space is concerned. Nasscom has guided for a growth of something like 10-12 per cent, Infosys itself guided for 11.5-13.5 per cent. Typically we are seeing that Nasscom guidance for most of these companies or the growth is on the lower end of that band. These companies, even if they were to grow at 10 or 11 per cent which is not a very exciting number, looking at the valuation at which they are quoting at something like 18 or 19 times one year forward. Yes, there are a lot of analysts who talk about rupee weakness and that should help these companies post some superior numbers. But you should not forget that should be taken only as a bonus, that is not coming from their core business. I am not excited about the entire largecap companies pack in the IT space, the top five companies. I am not a buyer in those stocks at all. They maybe a trading play but definitely not investment play, there will be much better options available outside these top five companies.

ET Now: Let us talk about banks. They have been dominating headlines when it comes to numbers. ICICI Bank was a complete no show. What exactly do you make of the prospects of these earnings?

Vivek Mahajan: Clearly we saw Axis Bank, ICICI Bank... the asset quality is becoming a concern by the day and as far as PSU banks are concerned, we do not know what sort of window dressing is happening over there in spite of central bank’s directives. So clearly, the space is going to struggle. Yes there are banks like HDFC Bank, IndusInd Bank and Kotak Bank which are not there into corporate loans at all. They are into working capital loan and as a result, are insulated. Moreover, they are focussing a lot on retail lending. Their NPA is low and the confidence is better. They may look expensive compared to the other banking stocks but they are better.
ET Now: The auto space as a whole. There have been a slew of launches. What have you made of the auto sales numbers and does this space interest you?

Vivek Mahajan: We have seen a lot of activity as far as auto space is concerned but we have seen phenomenal growth numbers particularly in the CV space. As far as passenger vehicles are concerned, there has been a decent growth and two wheelers have been struggling in general. To start with, as far as two-wheelers are concerned, we have seen the competition grow multi-fold. Of course, poor monsoon had impacted the numbers in the past. Any positive development on the monsoon front should be seen as positive, but the competition is very high. For companies like Bajaj Auto, the Indian market holds humongous potential, are going into international markets. There are a lot of multinational companies which are flexing their muscles in the domestic market. So Bajaj Auto is at least out.

We continue to focus on Eicher Motors which may look expensive but we believe that looks good from a medium to long term perspective.

As far as passenger vehicle is concerned, decent growth. Maruti came up with very good numbers. They have guided for a double digit growth in the current year though there are some capacity constraints but this stock has corrected on account of strengthening of the yen which has impacted their margins a bit. But we believe this correction should be used as a buying opportunity. This stock should deliver return of 20 per cent CAGR over the next couple of years. The CV space is exciting. Pure play will be Ashok Leyland, any correction should be used as buying opportunity. The stock has a potential to go to Rs 120-125 in next one year’s time. Of course, you can also play CV through Eicher Motors where, it is a small percentage but it seems to be doing pretty well. We are more bullish on auto ancillaries than auto.

Pure CV play will be Jamna Auto quoting at some Rs 140-142. Amara Raja Batteries should deliver very good numbers in foreseeable future that is again our preferred bet at current level. Any correction should be used as a buy opportunity. Wabco again is a pure CV bet that is Westinghouse Air Breaking Company which has got more than 80 per cent market share in domestic market. This stock came under pressure recently after the company went on record to say they are increasing the royalty payment to the parent. We believe that will be a thing of past. This stock should consolidate between Rs 5700 and Rs 5900 or thereabout before it starts its upward trajectory. So a person who is looking at the medium to long-term should, must have Wabco, Amara Raja Batteries and Jamna Auto.