Positive on manufacturing industry this earnings season: Harsha Upadhyaya, Kotak AMC

In a chat with ET now, Harsha Upadhyaya, CIO - Equities, Kotak AMC, says IT spends may get back ended this year. Edited excerpts:

ET Now: Post-Brexit in last 8-10 days we have seen a linear market action on the upside. What is your view?

Harsha Upadhyaya: Market has been quite resilient and despite some unforeseen negative events, markets has behaved quite okay. We had couple of negatives both from domestic and international front. On the domestic front, we saw the resignation of RBI Governor and we also saw voting on Brexit, which was a negative surprise for the market. But despite all this markets have shed off all these concerns and have continued to consolidate probably move up with a little bit of positive bias. I think market is focusing on the earnings momentum seen in the previous quarter. After four or five quarters, we saw a positive earnings growth year-on-year in the March quarter. Similarly, the top line growth after four successive negative quarters, we saw a positive momentum and going forward into June quarter we believe that is going to continue. There is a hope that GST will get passed in this monsoon session. Given all these positives I think markets are looking for a positive direction in the coming days.

ET Now: What are your expectation from IT big boys like TCS and Infosys?

Harsha Upadhyaya: For the last couple of quarters, we have been focusing more on domestic cyclical story rather than global or export oriented business. So, IT is clearly one of the underweight sectors in our portfolio and once the budgets has been allocated the spent will more back ended in this year. There is clearly pricing pressure across verticals, we could see more pressure going forward from European BFSI because of the volatility and the concerns relating to Brexit. There could be various other cross currency headwinds as well. Given all this factors we are not expecting spectacular results from IT. We think it is going to be a mixed bag for IT. So we will have to be a bit more stock specific in the IT sector. Though we have picked up couple of stocks and we hope that those companies will deliver better than industry average growth rates.

ET Now: Assuming the markets stays stable and you get substantial inflows from your SIPs or other funds, if you were to deploy money would your personal bent be towards buying those growth stocks? Would you start deploying a large portion of cash towards the non-index, non-Nifty 100 names because there are promising stories out there as well?

Harsha Upadhyaya: It depends on where we get our inflows into. For example, if the inflows come into large cap funds then that will go into a blue chip names. If we get flows into mid and small cap funds that will find avenue into mid and small cap segment. We are not really chasing momentum stocks or the stocks that have been trading at very high multiples. We are not really looking for very high growth at any price and we tend to look for couple of higher earnings growth than the market. We are betting on the operating leverage story that will start unfolding from here. The manufacturing industries where there is excess capacity, where the valuations are reasonable and there is a slight bit of demand uptick. We are not looking at any financially leverage companies in the domestic scenario as we do not see a sharp rate cut in interest. The financially leverage companies will take a while to actually come back to health and the initial leg of or turnaround in markets will have to be from operating leverage stories and that is what we are betting on.