Markets tepid, weighing in results and poll triggers: R Venkataraman, IIFL
As you correctly pointed out, the New Year has started on a rather tepid note. Having said that, we have to put things in perspective. The run-up to the New Year was quite euphoric. So, the market is taking a breather and that is primarily because of two reasons. One of course is the fact that we are entering into the earnings season and starting this week Infosys will announce its results and that will kick-start the formal earnings season.
Therefore, most of the market observers are waiting and watching and seeing what cues they can pick from the third quarter numbers to actually decide whether the worst is over, or if there is some recovery or stability in the earnings estimates of all the large companies.
The second factor is that four to five months from now we will be having general elections and most people are waiting and watching to see what kind of a government is formed at the Centre. As of now, five months is a long time to predict anything in politics, especially in a country of 120 crore with changing dynamics and moods. So, those we think are reasons why the market is taking a breather and generally I would say it is in a wait-and-watch mode.
In the near term, all eyes are going to be on Infosys' earnings. This has traditionally been a weak quarter for most IT majors ... What is the key that you are watching out for from the IT space and what according to you would outperform and underperform in terms of earnings this time?
Coming to the IT space, the big reason for re-rating was rupee depreciation, which we believe has more or less happened. Now we will not get a gigantic or a big currency move in the short term and the rupee depreciation story would gradually pan out, simply because of the way the Indian economy is structured, although we are seeing significant improvement on the current account deficit front.
Now things will be company-specific; and focus will be on how they are able to scale up their order books. There are stories of the US recovery happening. Europe is still not in such a good shape.
Now, it will completely depend upon what kind of projections the managements of the IT companies, not only Infosys, come up with. Coming to Infosys, the talk would be more about succession planning and restructuring that seems to be happening.
People will be observing that. There is moreover some amount of valuation mismatch between the midcap and the largecap space in the IT sector and we have seen a very good rally in the large names. Hence, some amount of portfolio reshuffling might take place on the midcap space also and we will be seeing some amount of action shifting to the midcap part of the IT space.
