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IT likely viewed as a defensive bet, says Nilesh Shah of Kotak Mahindra AMC

Updated : July 31, 2018 11:31 AM IST

Nilesh Shah, managing director of Kotak Mahindra Asset Management Company spoke to CNBC-TV18 about the fundamentals of the stocks market, stock preferences and the ongoing earnings season.

According to Shah, market is making all-time highs but it is not exuberant because only few stocks in banking, IT, and big conglomerates have gone up while a host of small and midcaps that are still below their 52-week highs.

"At this index levels, we may not be able to find much pockets of undervaluation but one will have to find out what market is pricing in terms of growth versus what is potentially achievable in terms of growth," he said.

When asked if the tide was turning for PSU banks, he said," One should look at the sector on a case to case basis. Corporate banks are indicating that provisioning cycle is coming to an end and their liability franchise is still intact, as well as the accretion to NPAs is low and new NPAs are not accreting at the earlier pace. However, management commentary about future plans and execution remains key."

Looking at the current earnings season, Shah said, "There are definitely fresh opportunities to buy. Up until now most of the reported earnings have been in in-line, only a few have failed to meet street estimates. The communication from managements about future has been positive. It shows that the overall economy has turned around, there is growth momentum despite liquidity tightening and higher real interest rates. The GST collections are also likely to surprise on the upside, he said. All these things indicate what momentum the economy is witnessing."

Talking about IT sector, he said broadly the stocks have delivered way ahead of the fundamentals. There is a massive re-rating of the sector happening because of order intakes or currency depreciation or because of defensive nature of the sector vis-à-vis rest of the market.

"Most of the largecap IT companies are trading around their historical average valuations or trading above their historical average valuations despite having lower expected future growth rate vis-à-vis the past. Some allocation to the sector is happening purely from defensive point of view because over the next 12 months markets are likely to remain volatile," he said.
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