Buybacks and growth revival will keep IT companies interesting, says Rupen Rajguru, Head of Equity Investment & Strategy, Julius Baer, in this chat with ET Now. Edited excerpts:How are you reading into the overall digitisation theme?That has been the theme across the globe. In the last 10-12 years, internet companies, platform companies and SaaS companies have been big wealth creators.In India, so far probably the private market was the only one in which people could have participated. A gaming company got listed at the beginning of the year and very soon a couple of other big companies are going to get listed. So it is an interesting space. I would say that in an overall allocation of an investor, these disruptive companies definitely merit a place. Having said that, we have to be cognisant of the value we are buying. You will never buy these companies if you were to go by the traditional metrics of valuation. Globally, these companies have 10-15% weightage in the index. So here also eventually these disruptive companies will be a part of the overall portfolios.Do you think that IT stocks have already run up a bit far or do you think this continues to be a long-term story which one must not get out of?In its annual general meeting, TCS chairman indicated about the huge pickup demand they are seeing, especially on the services side. A couple of years back they were growing at say 5-6% and now we are seeing them growing at 12-13%. The other important thing is the buyback. Ever since Indian IT companies started doing buybacks, they have got rerated. Globally, Accenture has been doing it for quite some time now. So with growth being much better than what it was earlier, it looks like this entire digital transformation story is here to stay. We believe that there are definitely more legs for IT companies to go higher from here as well. Apart from the big behemoths, there are interesting developments happening in the smaller companies which are into engineering, R&D or on the embedded product development side. The runway for growth is very long. Some of these companies have shown very significant revenue growth. So all in all, we believe that IT is something which has to be a part of the portfolio. The biggies might take a breather from a stock price perspective, but once we start seeing the quarterly numbers we will again see the stock price reacting. So buybacks plus growth revival are something which will keep IT companies interesting as far as portfolio construction is concerned.What is your take on the telecom basket? Do you think that after the announcements by Reliance Jio, things could hot up within the telecom space? Also, what is the outlook on Airtel?As far as telecom is concerned, it is now clearly getting into a two-and-a-half player industry. The disruptor is now focussing on profitable growth. So we believe that incumbents will be well behaved as far as the competitive intensity is concerned. Having said that, if you see the last one year or so, the largest player is focussing on getting its infrastructure right and spending a lot on infrastructure. So net-net, as an industry it has gone through extreme competitive intensity over the last few years. I think sanity is coming back and we believe as a sector, it is something one can definitely look into. There were some issues around regulations and some of the fees which one had to pay, but now all that is behind us. So all in all it is a play which one can look into for the next few years. Are there investment opportunities in the staples universe?Staples are classified as a defensive category but I would like to demarcate those companies which are disruptive or reinventing their business models or companies which are more adaptive. By adaptive companies, I mean companies which are getting future ready, getting into newer categories and constantly innovating, be it on the distribution side or on the e-commerce side.So while valuation always will be rich in these companies, some of them can create serious wealth from current levels as well.
from Economic Times https://ift.tt/3A0695z
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