The Nifty IT sectoral index is down over 30 percent this calendar year and it has been a crunching bear market for the large-cap IT companies, but Nilesh Shah, MD and CEO of Envision Capital, believes that time has come for investors to start accumulating quality IT companies.
In an interview with CNBC TV-19, Nilesh Shah shared his views on the IT sector, markets, auto space and what he sees as the way forward. Excerpts from the interview:
What are your views on the IT space?
The IT margins are moderating. The valuation has become more reasonable. We don’t expect margins to further deteriorate from the current levels. The demand environment remains intact. Companies are not talking about demand slowdown. From here on, we don’t expect the IT sector to be an underperformer vis-à-vis markets.
It is a good time to start accumulating good quality IT stocks.
What about the overall domestic markets?
Indian stocks’ outperformance is likely to sustain as compared to other global markets. India will be an outperformer globally because of good GDP growth, inflation moderation, and improving margins.
The way the macros are being managed and policy initiatives are undertaken, India will continue to witness outperformance versus the rest of the world.
If the growth phase for IT companies will be back to pre-Covid levels, why should multiples be significantly higher than pre-Covid numbers?
Different pockets of the IT services space will have a different kinds of growth prospects. The top two or three IT companies which are dealing with a large base will probably see growth rates of probably 10-12 percent.
The tier 2 IT companies will grow faster than the pre-covid period at a rate of 15- 20 percent, which is good when we bring in recessionary talks worldwide.
Auto sector outlook…
Auto continues to be an opportunity for growth from India’s perspective. We are optimistic about auto and auto components combined. Ee could probably see double-digit growth in demand.
We expect Indian auto and components space to do well for the next 2-3 years, though part of it is priced in.
