CLSA’s Vikash Jain
Vikash Kumar Jain, investment analyst, CLSA believes that froth in the Indian IT sector is gone and there is a strong probability of tactical upside due to strong numbers in the quarter ended June.
In an interview with CNBC-TV18 on July 28, Jain shared his thoughts on FII ownership, IT sector space, and what lies ahead for the Indian equity markets.
Edited excerpts
Outlook on the market
Indian markets have absorbed $ 33 billion of selling by FIIs in the last 8-9 months. FIIs’ percentage ownership of Indian markets is the lowest in the last ten years.
Mutual fund ownership is at a record high. Retail ownership has down in the last quarter.
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The star performing sector in the quarter ended June was the auto sector. Currently, both FIIs and domestic mutual funds own more autos in their portfolio relative to anytime in the last five to seven years. The auto sector is now getting in the over-ownership zone.
How to approach IT sector stocks?
We were bullish on banks over IT stocks at the start of the year. Historically, if we look at rising rate cycles, banks have outperformed IT.
There is some consensus that we have already seen the bigger part of the intensity of hikes. And IT stocks have also corrected significantly.
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We are still underweight on IT but a lot of froth has gone from the sector. There is room for a tactical upmove given the correction.
How much more can FIIs sell?
FIIs will stop selling when redemption stops.
As per my conjecture, fund managers booked profits in Indian stocks to pay for redemptions in China as shares were highly expensive.
To prove this point, when we look at EM funds, we have reached a point that nearly 60-65% of them are now underweight in India, that’s the highest proportion of underweight that we have seen in EM funds.
Given the valuation differentials, FIIs may not change their positioning from underweight to overweight very quickly.
Room for upside ahead?
After the recent rally, one needs to figure out how much room is left for an upside. We need to see a cool-off in bond yields for a significant upside from hereon.
