The information technology sector, which emerged as the top loser of 2022 in the domestic equity market, may take another six months to show some green shoots on Dalal Street, according to Emkay Global Financial Services. The BSE IT index has tanked over 24 per cent on a year-to-date basis till December 27. Market watchers believe that the ongoing slowdown in the US and Europe has dampened sentiment.
In a webinar on December 28, Sanjay Chawla, Head Institutional Research, Emkay Global Financial Services said that the US recession to play out in the next six months. Thereafter, the IT sector will become a strong buy. “Overall, we are underweight on IT as a sector. However, we are broadly neutral on largecap IT stocks at present and underweight on midcaps from the sector.” Chawla said adding most of the recession fear has already been priced in the IT stocks.
Among the major IT names, shares of Wipro, Tech Mahindra and LMI Mindtree declined 46 per cent, 44 per cent and 40 per cent, respectively, on a year-to-date basis. L&T Technology Services, HCL Technologies, Infosys and Tata Consultancy Services also plunged somewhere between 10 per cent and 33 per cent since the beginning of the ongoing calendar year.
Chawla further added that they are underweight in some other sectors including consumer stables, NBFC and oil marketing companies (OMCs). On the other hand, “We are significantly overweight on banks especially private sector banks and automobiles. We are moderately overweight on insurance, cement, power, utilities, telecom and Reliance Industries.”
The BSE Auto index has advanced nearly 16 per cent YTD. The market analyst believes that the ongoing cycle has legs and the rally will continue particularly in the commercial vehicle space for another 2-3 years. “We are positive on the capex cycle. This will continue to support the cement sector. It is a matter of time before private capex picks up. There is still momentum on the housing front and the central government is on track to meet its capex budget for this fiscal year,” Chawla said.
Market outlook
While sharing his views on the benchmark equity index, the market watcher highlighted that Nifty’s earnings per share (EPS) is expected to grow around 13 per cent and 18 per cent in FY23 and FY24, respectively. “FY23 EPS has been cut by 4.5 per cent since the start of the Russia-Ukraine conflict, while FY24E has been trimmed by 3.2 per cent,” Chawla said, adding he sees limited downside risks to the earnings.
He further highlighted that the global growth slowdown and the lagged impact of monetary tightening could be some of the risks for FY24 earnings. However, Chawla believes that the Nifty may still deliver a single-digit return of 7 -8 per cent to investors in the base case scenario by December 2023. On the other hand, he sees the benchmark index at 21,000 in the bull case scenario and at 17,500 in the bear case scenario. At present, the index was traded at around 18,100 in the afternoon trade on December 28.
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