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Banking and IT stocks have come down to very reasonable valuations

"Even decent results are going unnoticed. Take the Infosys and Axis Bank results where the outlook going forward is bullish, but the stocks are down.

Link: https://economictimes.indiatimes.com/markets/expert-view/banking-and-it-stocks-have-come-down-to-very-reasonable-valuations-arun-malhotra-of-capgrow-capital-advisors/articleshow/91229009.cms

We believe that a large number of stocks in sectors like banking and IT have come down to very reasonable valuations, considering the embedded growth in the strong franchises and their strategic positioning, says Arun Malhotra, Founding Partner & Portfolio Manager, CapGrow Capital Advisors.


In an interview with ETMarkets, Malhotra said they are wary of the price action in some of the small and mid-cap stocks, and currently, the large-cap stocks offer better risk-reward as compared to the small and mid-cap space. Edited excerpts:

A volatile week for markets but bears remained in control for the week ended April 29. What led to the price action?
Volatility is going to be part of the game for the next 6 months or so. There are enough macro factors that add to the uncertainty in equity markets: a) High commodity prices, supply disruptions, b) the Russian Ukraine crisis, and c) the pace of hike in interest rates globally.

The current Indian equity markets are also behaving the same way.

 

On a monthly basis for April, benchmark indices might end flat with a negative bias. How is the market likely to pan out in the May series? What are the important levels that one should track in Nifty as well as Nifty Bank?

I believe that the markets are in a zone where any slight negative earnings will have a higher impact and will be punished severely.

Even descent results are going unnoticed. Take the Infosys and Axis Bank results where the outlook going forward is bullish, but the stocks are down. The markets will be range-bound between 16k to 17.5k Nifty levels.

 

Will 'Sell in May and go away' come true in 2022? FIIs have sold more than Rs 37,000 cr in the cash market of the Indian equity market in April.


We are seeing continuous selling for the last so many months and May month may not be a different story.

But, we believe that a large number of stocks in sectors like banking and IT have come down to very reasonable valuations, considering the embedded growth in the strong franchises and their strategic positioning.


Hence, we are almost near the trough in those sectors. Commodities may be one sector where we may see some sell-offs.

The IT index fell more than 10% in April. What does the chart structure suggest? What were the reasons for the fall?
The IT sell-off is driven by concerns about the US economy where we may see a hike in interest rates to contain inflationary pressures. That may affect the US firms spending including their IT budgets.

Another reason is the sharp price corrections that we have recently seen in Nasdaq IT stocks that are being carried to Indian IT stocks.

Our fundamental view is that the IT demand scenario remains robust and is a structural shift, and we will continue to see higher deal wins.

BSE Small & Midcap indices rose more than 3.5% in April compared to flattish performance from Sensex and Nifty. What led the price action, and how should investors play this space in May?
We are wary of the price action in some of the small and mid-cap spaces, and currently, the large-cap stocks offer better risk-reward as compared to the small and mid-cap spaces. Time to shift and increase weights in large caps.

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