Mohit Nigam, Head – PMS at Hem Securities, who is a chartered accountant by training, has about six years of experience in the capital market, said they are very bullish on the IT sector and believes that investors should hold their investments in this sector to enjoy multifold returns.
“We believe mid cap IT companies may show growth of 20-25 percent in their topline and large cap IT companies may show growth of 15-20 percent in their topline for FY22,” he said in an interview to Moneycontrol’s Sunil Shankar Matkar.
Among sectors that were affected the most by Covid crisis, Nigam said there could be more traction in aviation, hotels and tourism sectors due to pent up demand and the upcoming festive season if there is no another leg of Covid wave.
Q: IT majors announced their September quarter earnings during the week. What is your overall reading considering run up in stock prices and have you changed your earnings estimates for FY22?
IT companies have started posting their earnings this week. TCS posted slightly below estimate numbers but Infosys, Wipro and Mindtree numbers have shown a strong all round performance, beaten all the street estimates and revised their growth guidance. Deal wins momentum is strong and aggressive hiring clearly shows that the demand environment is robust.
According to our analysis, mid cap IT companies will continue to outperform large cap IT companies. Our top picks in this sector are Mindtree, Persistent Systems and Mphasis. We believe mid cap IT companies may show growth of 20-25 percent in their topline and large cap IT companies may show growth of 15-20 percent in their topline for FY22.
Overall we are very bullish on this sector and believe that investors should hold their investments in this sector to enjoy multifold returns.
Q: The market rallied around 50 percent from last Dussehra 2020. Do you expect the similar kind of return by Dussehra 2022 and what could be driving factors for the same?
Indian equity markets might continue to witness higher levels on the basis of several fundamental reasons. Although gains might not be as good as 50 percent since it contained an element of recovery from pandemic, nonetheless equity should possibly perform way better than most of the asset classes.
India’s growth and economic parameters continue to remain strong keeping aside temporary situations. Make in India initiative, China+1 strategy, government’s aggressive approach towards growth and development, PLI (production-linked incentives) schemes, foreign investments, rapid vaccination drives, lifting of travel restrictions, easing out curbs over various industries are some of the major reason which have lifted market’s momentum this year and shall continue to play key role in driving it for the upcoming quarters.
Structural changes in China’s policy making shall also make India more attractive for foreign investors in the coming time. On the other hand, RBI continues to keep its accommodative stance and keep rate unchanged to support liquidity. IMF reaffirms India’s growth at 9.5 percent for FY22 even while dropping global economic growth estimate by 10 bps to 5.9 percent for the same period.
Concerns like energy crisis, rising bond yields, inflation, shortage of raw material for various industries and a potential contagion situation in China are some factors which markets should keep a track of while riding Nifty’s momentum as these could give temporary setbacks to the bull run.
Nifty50 has a history of maintaining its average PE around 26 during the last five years and going ahead earnings growth looks to be supportive enough to capture more upside.
Q: Do you expect a big IPO line up in the second half of October 2021? Also do you expect the amount of fund raising via IPOs in 2HFY22 to be higher than 1HFY22?
The second half of October month is likely to be busy for IPOs as a number of IPOs are expected to go live and there is another Rs 20,000 crore of IPOs expected in November. Year 2021 would then end up being the best year for IPOs, bettering the previous record of the year 2017. Upcoming IPOs in October with their IPO size (estimated) are Nykaa (Rs 4,000 crore), Mobikwik (Rs 1,900 crore) and Ixigo (Rs 1,600 crore).
Successful IPOs which closed their public issues in H1 FY22 were Zomato, Devyani International, Paras Defence, Barbeque Nation etc. The total fund raised in H1 FY22 was about Rs 60,000 crore through 22 IPOs. However for H2 FY22 pipeline for IPOs are even more robust with more than 20 IPOs lined up to raise more than Rs 1,10,000 crore. These obviously includes the mega Rs 16,600 crore IPO of Paytm and the Rs 75,000 crore LIC IPO.
Q: Do you feel the inflation worries on rising oil price, and higher US bond yields on expectations of beginning of Fed tapering in November 2021 could spoil the party?
Yes, there would be some pressure on the economies worldwide due to rising inflation. The markets may see some correction in the near term but the strengthening of the Indian economy on back of supportive GST collections, the long-term party will not be spoiled due to the rising oil prices or rising treasury yields. The oil will come down once the production cuts gets lifted by the OPEC+ nations. Rising yield is a sign of the stronger economy and less is the need for the monetary policy support. Time to be cautious in the markets and continue to enjoy the party.
Q: Is it the time to go overboard on sectors (including travel, tourism, hotels, aviation and many more) that were affected the most due to Covid-19 pandemic? What is your pecking order?
With the improvement seen in economic indicators in terms of business as well as recovery rate of Covid pandemic, we can witness a gradual revival in the hospitality and aviation sector. Demand in this hospitality sector is mainly led by the leisure segment but we can start seeing resumption in the corporate and events sides too in the coming quarters.
Recent government decision has opened the doors for foreign tourists from November 2021 onwards to visit India and we expect that would help grow revenues of the premium segment. As per the recent industry data revenue per occupied room in some segment has reached the pre-pandemic level and with the ongoing demand and uptick in economic activities, we can expect tourism demand to reach Pre-pandemic levels sooner than estimated.
Daily passenger air traffic movement has also increased to 58 percent of pre-Covid levels during Q2 versus 38 percent reported in Q1FY22 and the recent decision by Ministry of Civil Aviation which will allow airlines to operate at 100 percent of their scheduled capacity from October 18 onwards from previous 85 percent operating capacity will support growth and demand for domestic travel and will help operate flights on pre-pandemic levels.
If we don’t see another leg of Covid wave then we can expect to see more traction in these sectors due to pent up demand and the upcoming festive season. If we want to give an order we’ll pick Hotels and Tourism stocks over the aviation sector looking at their balance sheet and the required liquidity needed to support future growth.
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