I do not think bull markets end because the valuations have reached certain PE multiples, says Hemang Jani, Equity Strategist & Senior Group VP, MOFSLOn Infosys & IT companiesThe overall environment for technology space is extremely buoyant and going by the Q3 numbers of TCS and the management commentary, expectations are running very high when it comes to Infosys, Wipro and the majority of the tech pack. Apart from the quarterly numbers, one can look at the upgrades in terms of market guidance that the market would be keenly watching out for. It will be a combination of the EPS upgrades plus the buybacks which these companies have completed. The effective upgrades could be in the range of 15% to 18%. If one looks at technology as a space, one would definitely have a positive bias and for companies like Infosys and HCL Tech, there is a valuation comfort also. If there is a combination of EPS upgrades, a little bit of buyback and a valuation comfort, then people would grab it with both hands. We continue to have a positive bias on these names. On auto spaceThe overall auto sector is doing pretty well. The monthly numbers and the recent data points show that two-wheeler growth is looking a bit subdued and we are seeing incremental positive data points coming from the CVs. So from that perspective, Ashok Leyland and Eicher are the two names one would be very comfortable with. Apart from that, we have seen a fair bit of action in Tata Motors in the last two days on the back of slightly better numbers from JLR. On the domestic side, if the CV cycle is going to turn around, then Tata Motors will have some kind of a rub off. Overall, we continue to have a positive bias on auto with the recent addition that we have made to our model portfolio of Ashok Leyland and Eicher. Hero Motors could take a bit of backseat because of subdued performance on the two-wheeler front. Among auto ancillaries, we like both Endurance and Motherson Sumi. Should one cash out as the market is getting too hot to handle?Some investors would be tempted to cash out and create 10-20% liquidity but the key question is what is the basis of this entire rally that we are seeing? One is the liquidity flow which is coming from the US and a lower interest rate environment. Second, we are seeing strong earning upgrades in India after a long time. Also, Q3 has started off on a good note and we are seeing upgrades. Just because the market has run up is not a good reason to take a call that it is time to move out. As long as the earnings growth picture pans out well and there are upgrades and the liquidity scenario is playing out well, there is no reason to believe why this bull market will suddenly stop. I do not think bull markets end because the valuations have reached certain PE multiple. You may see some corrections on the way but I strongly believe that we are in a bull market and as long as this earnings trajectory remains good, we should participate in it. On PSU banksWe are seeing very strong action in the PSU space and some of the smaller PSU banks too have seen uptick, but we are very clear that from a one or two-year perspective, there is no point in trying to look at some of the smaller PSU names because we honestly do not see a structural story there. For somebody with a shorter term view, some of these beaten down names might see some action but we really want to stick to the top one, SBI. If the PSU banks as a space moves up by x%, a large part of that move will come only from State Bank of India and there is no point trying to look at valuations and participate in other names. Things are looking better but it makes sense to be selective. On telecom sectorThere are two things when it comes to telecom. One, there is going to be positivity about the Bharti stock as post revision of its foreign investor limit, Airtel’s weightage in MSCI should go up and this could result in significant inflows into the stock. Bharti’s market share gains and 10-12% ARPU growth even without any price increase bodes well for the company and to some extent even for Reliance because it has underperformed. In one or two years, one could expect a decent amount of traction building in terms of ARPU growth for Jio as well. So overall, telecom is a sector that we would really want to be overweight on. It has not performed in the last six months but from a core portfolio point of view, both Bharti and Reliance should have respectable allocation in the portfolio for a much bigger upside.
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