See no fundamental reason for a sharp rally in IT stocks: Bhavin Shah, Equirus Securities

In a chat with ET Now, Bhavin Shah, CEO, Equirus Securities, shares his views on some sectors and stocks. Excerpts:

ET Now: In India everybody seems to be bullish on the e-commerce growth. Do you think the next Alibaba can come from India?

Bhavin Shah: Next Alibaba may not necessarily come from India, but it is certainly possible that there could be a very strong IPO from India in this space because the inflection point has already been crossed as far as e-commerce goes.

ET Now: What is your reading about the valuations that some of these companies have because no profit is being made by the Indian companies, particularly those who are small, but the stocks have run up quite a bit. Is this sustainable?

Bhavin Shah: It is definitely beat of that bubble feeling that one is getting in this sector and we have seen this played out in 1999-2000. The growth is real and the opportunity is real. Markets have always behaved this way that valuations can get unrealistic at times and then get readjusted.

ET Now: The party in the ecommerce space seems to be more of a private carnival. So how do you think that retail investor can really participate in this? Anything that you like in the listed space, something like JustDial or InfoEdge?

Bhavin Shah: We do not cover these two companies. We had looked at Info Edge. They have some very good properties where the valuation of the stocks is a little difficult to understand. So we do not directly recommend anything in this space.

ET Now: Talk about what a retail investor can do in India and now thinking about ancillaries if there are not enough quality ecommerce companies available, but if ecommerce is slated to become really big, what about the ancillaries, the logistic companies so on so forth? Is there anything there that you like?

Bhavin Shah: Ecommerce leads to a strong demand for logistics, but again we do not cover anything there. We look at some of the offline companies which are also trying to adopt the ecommerce model.

We look at companies like Keval Kiran or Symphony, for example. They have got a new channel to sell their products and they can see a higher growth because suddenly their products are now reaching smaller cities.
ET Now: The dollar has strengthened a bit or the rupee has weakened a bit from 60 to 61. That surely cannot change fortunes. Why is there so much of sudden exuberance over the last three or four days or maybe the last two weeks in IT? What is happening?

Bhavin Shah: It is purely sector rotation in our view. You have seen that valuations across all sectors have gone up and there is a little bit of catch up being played in the IT sector. I do not think there are any sector-specific triggers other than the announcement of Cognizant acquisition.

I do not think this necessarily suggests any acceleration in revenue trends. TCS continues to maintain its promise of above industry growth rate and Infosys also said that sort of acceleration will take some time.

ET Now: What is it that you still like in non-IT? I remember maybe three months ago you mentioned that there is still some upside left in midcaps, but then the valuations may become stretched in stocks like Atul or a couple of others. Is there anything that still looks reasonably priced and is still a good bet for the next one to three years?

Bhavin Shah: One is Torrent Power. Their biggest issue has been availability of gas and we understand that this new government is working very actively to come up with a solution for gas, some sort of price pulling mechanism which will essentially improve the availability of supply to companies like Torrent Power and improve their plant utilisation.

We also recently initiated in a company called Hitachi Home Appliances. They are an air conditioner maker and the company saw a change in the top management. The new managing director appears to have put in place a lot more discipline in the way they are running business and at the same time they are far more aggressive in the market. As a result, they had a very strong June quarter.

ET Now: I was wondering if you had a view on the pharma space given the kind of movement that we have seen of late and do you think that there is more to go by way of rally?

Bhavin Shah: We like the pharma space. I feel Indian pharmaceutical companies have a number of opportunities. We initiated in Cipla just a few weeks back and the stock has rallied very significantly. We also like Torrent Pharma.