How do you see the market set up due to favorable policy announcements ahead of China? How do you see the flow of funds into India over the next six months? What kind of return expectations can be had at the index level?
George Thomas: When we look at the current valuations in the broader market, it’s generally true that if you look at sectors, most sectors are trading close to full value. So, there is very little room in terms of value from current levels. This is true for most sectors that prohibit financial and certain select names in certain sectors whose past is not pleasant.
Coming to the announcement of China’s policy, in the past few decades, China has aggressively built infrastructure and in such an environment, if we look at the consumption pattern, metals and commodities will be consumed on a large scale in this phase. development. But our sense is that the development of the highest infrastructure is behind us.
If I will take a view of the next five years, even if they have announced quite good stimulus measures, it may not lead to the consumption of metals or other commodities as we have seen in the past decade. In the post-Covid era, this is a globally synchronized stimulus.
Globally, the rest of the world is improving and again it coincides with a period when inventory levels are quite weak around the world. This may not happen in the next four-five years, but there is a possibility that the sliding trend in commodity prices may be arrested by new announcements, but we do not feel that this can be a case where it will be seen as big. spikes in commodity prices.
But as far as the flow is concerned, with the value being in China at this time, there may be some possibility of FII flow being diverted to China. But having said that, the Indian market with enough DII money flowing in, the market might get some support from the DII flow.We’re about to hit results season and you’re already bullish on the IT space. From an earnings perspective, how do you expect IT earnings to come out and who might be a good performer in this particular quarter? Market participation has been more in the middle as well as the small end of this particular sector, while the large caps were lagging behind a little. What is your view on the overall IT space?
George Thomas: In IT, one cannot afford to spend too much time on cheap technology because it will return to business performance as IT systems have become quite important from an overall perspective. After several quarters of muted growth, our understanding is that IT spending has been a trend that we have historically observed. But if Gen AI and things will take off, it’s possible that hardware buyers will see quite rapid growth in the initial phase and will be followed by IT service players for the demand for integration and things. Incrementally, we think things should get better from now on. The order book for most IT players is fairly robust. Our sense is that clients have been waiting for how the macro environment will shape to push the pedal for discretionary spending and our sense is that the rate cut and everything has started, this could be a time when we can see some acceleration in IT. spending.
We are quite positive from a growth perspective from the current level. Gradually, everything should look better than it is now. We are more positioned towards largecap names that will benefit from large end-to-end integration offers. Some mid-sized and smallcap names have factored in too much positive news and valuations are a bit on the expensive side compared to whether they can come out ahead of earnings.
It also helps us financially. Do you find comfort value in a certain sector, believe that although the index is very close to the all-time high level, the counters are very selective hitting that all-time high level for themselves. Do you believe that there is a value gap and one can benefit from it?
George Thomas: In the past few years, the main problem that has troubled the banking sector or the financial sector is that, one, there is not much liquidity and therefore credit growth, there is a wider gap between credit growth and deposit growth. And secondly, the cost of credit in the place is light. So, when the credit environment is quite benign, what usually happens is that you cannot tell the bad lenders from the good ones.
Our understanding is that both cases will normalize, so the credit environment remains benign, but we may see some normalization in the next few quarters. If you look at the current profile, some pockets like MFIs or credit cards see some stress coming up. In such an environment, we will see larger private banks with better underwriting skills.
Number two, as liquidity in the system gradually improves, we will see that the gap between credit growth and deposit growth narrows and that will benefit from incremental profits and such. In an environment of falling interest rates, it may not be too difficult for banks to raise deposits. They may not have to raise deposit rates from here to collect more and more deposits.
