Santosh Meena, Head of Research at Swastika Investmart, who has more than 10 years of experience in the financial markets with expertise in technical & derivative analysis, said TCS witnessed another quarter of strong earnings but there is a slight miss on expectations especially on the margin front.
“The stock has already rallied ahead of results so we can expect some profit booking on the back of minor miss on expectations, hire attrition rate and lower deal wins however long term outlook is still bullish and any dip will be a buying opportunity,” he added.
In the realty sector, he believes this is just the beginning of a bull run and it may continue for the next 2-3 years. “However, an intermediate correction in stock prices can’t be ruled out.”
Q: What is your analysis over RBI monetary policy? Have you changed your projections (inflation, growth, rate hikes etc) after the policy?
The RBI monetary policy was in line with expectations where MPC (Monetary Policy Committee) decided to keep rates unchanged with an accommodative stance. RBI signals normalization of liquidity by scrapping GSAP (Government Securities Acquisition Programme) but also said that they will continue with OMOs (open market operations) and operations if there will be any requirement. The market reacted positively post RBI policy but cooled off from the day’s high as there was no major surprise in the policy.
Some economists were expecting a hike in the reverse repo rate because they want RBI to be ahead of curve amid rising inflation globally. RBI cut down its inflation forecast to 5.3 percent for FY22 but I believe there is an upside risk for inflation amid a sharp rise in commodity prices globally.
RBI retains the GDP (gross domestic products) growth target at 9.5 percent in FY22 that may surprise in the upside if there will be no negative development on the Covid front. We may see a hike in the reverse repo rate in the next two policies and the difference between repo rate and reverse repo rate will again be brought down to 0.25 percent before any hike in repo rate.
Q: Do you think inflation and oil prices can dampen the market sentiment and become a cause for major correction in the near future?
I believe the biggest risk for the global equity market is inflation. The Indian equity market is in strong bullish momentum and it is ignoring inflation risk for the time being but sooner or later it will take cognizance of this fact and that may lead to some correction in the market however any correction will be a good buying opportunity.
Q: Auto and Realty stocks had a strong run this week. What are major reasons and should one buy these stocks now or be selective? What can be bought amongst them?
If we talk about the real estate sector then there is a turnaround story. The sector is coming out of 10 years of the down cycle where the last 5 years were very painful. The strong recovery in the sector can be attributed to low interest rates, supportive government policies, cut in stamp duty, consolidation in the industry due to RERA (Real Estate Regulatory Authority), and most importantly improvement in sentiments. Most of the companies are posting strong sales growth and management are very confident about future growth. I believe this is just the beginning of a bull run in the realty sector and it may continue for the next 2-3 years however intermediate correction in stock prices can’t be ruled out.
If we talk about the auto sector then the story is not so promising because there is still a bumpy ride for many auto companies due to the rise in input cost & competition and shortage of semiconductors. However, the auto ancillary sector may outperform. The auto sector is witnessing a catch up as the sector was underperforming the overall market and there is hope that we could see a strong demand recovery amid the festival season. Tata Motors is outperforming the sector because of its inherent strength where Morgan Stanley recently upgraded the share to outperform for the target of Rs 448. Tata Motors is showing a turnaround story on the backdrop of the E-vehicle segment. It was one of the most undervalued stocks in the auto sector and it still has attractive valuations. It is gaining market share in the passenger vehicle (PV) segment whereas JLR (Jaguar Land Rover) business is likely to show a strong recovery.
Q: Has the TCS’ quarterly earnings met your expectations? Is it overpriced now with 36 percent gains YTD and should one buy the stock now? What is your broad expectations on rest of IT stocks earnings?
TCS witnessed another quarter of strong earnings but there is a slight miss on expectations especially on the margin front. There is double-digit growth in all verticals and management commentary is very bullish where they again emphasized on-demand as a once-in-a-decade opportunity. The attrition rate has jumped to 11.9 percent however it is lower than the industry average and the company has increased the hiring target that indicates both strong demand and a higher attrition rate expectation.
The deal win is $ 7.6 billion versus $ 8.1 billion in the last quarter which is a minor negative factor. The stock has already rallied ahead of results so we can expect some profit booking on the back of minor miss on expectations, hire attrition rate and lower deal wins however long term outlook is still bullish and any dip will be a buying opportunity.
Q: Fitch Ratings cut its economic growth forecast for FY22 to 8.7 percent from 10 percent due to severe second Covid wave. Do you agree with Fitch Ratings and what is your forecast?
Rating upgrades and downgrades come with a lag, and the impact of second-wave is not as severe as expected. I believe the Indian economy may witness double-digit growth in FY22 because we are seeing a strong recovery in most of the sectors.
Q: Can you name the sectors which could report double-digit earnings growth and fall in earnings growth in Q2FY22 versus Q2FY21?
The banking, Metal, Chemical, Realty and IT sectors may witness strong growth momentum while the Auto companies are likely to post a weak quarter.
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