It is a game of valuations now that you should be looking at, essentially, because most of the sales recovery and profit recovery post Covid has in a way happened. The inflationary pressures coming on to the producers’ manufacturing cost has also eased, the shortages pressures on components has eased and so it is all about valuation.
When you look at valuation, one has to always think about what the stock has done in the past year or so or couple of years and then take a call because the growth here that most of the automobile companies are showing in terms of top-line growth is fairly muted. It is either single digits or early double-digit kind of numbers. These are not great numbers that essentially help valuations. But from a perspective of underperformance relative to the market is what one should really look at when looking at an investable company or an investable sector.Talking about valuations, what is your view on IT earnings as well? I have been speaking with you post each of the IT earnings, but collectively now what is the sense on IT?
What we saw from the IT result was a little muted kind of performance and the outlook does not seem to be very strong, given the fact that most of the IT companies have reduced their bench strength, the employee headcount is lowered and while the deal win momentum is there, they are definitely seeing a slowdown in terms of ramp-ups from customers.
So, it is going to be a little tough for them and we are in a holiday kind of quarter where there will be a lot of furloughs coming in and therefore the ramp-ups are not likely to take place in this upcoming quarter. One will have to look at what is really in store for them the next calendar year onwards. With the deal win momentum still being healthy, it is only an issue of ramp-up.
At least the headcount number does not tell us that the ramp-up is likely to happen now but if we are likely to sense any uptick in terms of intakes that the IT companies do, employee intakes that the companies do, we should be seeing better numbers for the IT sector going ahead. Till then I will be a little cautious on the IT sector right now.
What is your understanding about the results which are due to come out and quite a few of them are largecaps and there are a slew of mid and smallcaps as well which are due to report their numbers. Anything in particular that you are going to be looking out for at your end?
The Sun Pharma result will be quite important because we will notice that most of the pharma companies have not been investors’ favourites for a considerable number of years now and there is a growing anticipation that some of these companies will now start gaining either market share or accelerate their earnings in terms of new filings, new revenues, etc. As it is, we have seen that there is a bit of an M&A activity ongoing within this pharma space. I would watch out for the Sun Pharma result and particularly try to look at what the management is trying to tell us about the industry as a whole.In construction equipment specifically, would you be a buyer in names like Action Construction, Sanghi Movers or any other ancillaries like BML, etc.?
The sector is quite promising. Some of these companies have really lost the opportunity to grow big and they have not been able to keep up with their margin sustenance, that is something which is a bit worrying. So given the fact that there is a huge capex requirement, which will call for a lot of construction equipment, machinery to be brought along, I would rather focus on such large companies, which are in the project space, L&T is one of them, or even companies like Mahindra because Mahindra has an exposure indirectly to the construction space, some of the tractors also get utilized for construction activities. So it will be better to play that theme, rather than focusing on pure play construction equipment manufacturing companies. Like I said, margin is something that they are clearly disappointed on.
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