IT sector may see recovery from Q4FY24; can invest in banking, infra, auto, says Aditya Gaggar of Progressive Shares

Aditya Gaggar, Director of Progressive Shares believes that the earliest signs of recovery in the IT sector would only be visible from Q4FY24 or Q1FY25 onwards. In an interview with Mint, he said one can look at banking, infrastructure, auto, pharma, and chemicals sectors to invest. However, he emphasised that it is more of a stock-specific rather than a sector-driven market.

Edited excerpts:

What are your views on the Q2 earnings of IT companies? Should we avoid IT stocks at this juncture?

There has been an uptick in the order inflow seen over the past two to three months across the IT companies but a slowdown in the project-based business is hampering the overall industry growth. 

With the macroeconomic scenario being uncertain, which weighs on discretionary spending, Q2 results are expected to be muted (seen through the leading names already). 

There has been anticipation of a recovery in the coming quarters for the sector (deal wins show positivity on expected revenue growth for FY25E), but it definitely remains a wait-and-watch, as macro conditions maintain the volatility. 

We feel that the earliest signs of recovery would only be visible from Q4FY24 or Q1FY25 onwards.

What are your views on the mid and Smallcap space? The BSE Midcap and Smallcap indices have been in the green since April this year on a monthly basis. What is the road ahead for them?

The mid and small-cap indices have outperformed the larger peer in 2023 (witnessing a rally of 30-35 per cent) despite the volatility and global uncertainties at its peak. 

Will this rally continue or not is more of an unpredictable thing (as each time a correction was expected there has been an upward move led by higher inflows) but definitely this space has always been about buying good businesses. 

For the ones who have invested with us and made a good return in the recent rally, we have been advising of booking profits making it a free-of-cost investment. Fresh investments are recommended in the intermittent falls being witnessed.

When do you expect a fresh all-time high for Nifty 50? What could lead the market to a fresh record high? What is your year-end target for the index?

The markets have been rangebound digesting the negatives from the macro front. From the technical perspective, if Nifty 50 surpasses the level of 19,850, then it would be considered as a breakout through the Cup and Handle pattern (continuation formation). In case of a breakout, the target is chalked at 20,350.

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Considering the current macroeconomic situation and geopolitical conditions, is it time to trim exposure to equities and buy safe-haven assets?

There have been periodical global uncertainties on the rise which have been playing on the sentiments of investors. 

India parse, a decent domestic inflow consistently seen in the system has helped maintain the liquidity, giving the investors opportunities to follow the buy on dips strategy. 

Trimming exposure to equities could be better replaced by profit booking at pre-set rises. 

We need to prepare for volatilities but otherwise, the market seems to be rangebound and does give chances to participate, definitely not that big a concern. 

Safe-haven assets should be a part of any diversified portfolio and not just a shelter for rainy days.

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Why are foreign portfolio investors selling Indian equities while domestic institutional investors are buying? Do you expect this trend to continue for the rest of the year?

The earlier scenario was that the FPI (foreign portfolio investor) flows were on the roar for the Indian markets, translating into new highs for the indices. 

On the flip, it was the DII which continued to be sellers in a cautious mode. 

However, the reversal was attributed to the appreciation of the US dollar/ higher bond yields and the rising crude oil prices, negatives that impacted the FPI flow into the Indian markets. 

This scenario is expected to persist until some clarity is achieved from the Fed desk as well as settling of the other macro factors. 

There has been sustained buying by the DIIs (domestic institutional investors) which has led to the markets higher in spite of the constant FPI/FII selling. 

The conviction is obviously here to stay (betting on the positive outlook for the Indian Economy), while gradually the FPI should also get back to basics once the uncertainties are put to rest.

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Where is the money in this market? Which sectors look attractive to you for the next one-two year perspective?

It is more of a stock-specific rather than a sector-driven market. Broadly speaking, one can look at banking, infrastructure, auto, pharma, and chemicals as some of the spots to invest. 

As investors we have always had a bottom-up approach and believe in stock-specific investments as instead of a cycle, it is the individual investment rationale that we bet on. 

We would look at stocks like Ultramarine Pigments, Advanced Enzymes, Tatva Chintan Pharma, HBL Power, FDC, Bharat Rasayan, etc., from a long-term perspective.

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Disclaimer: The views and recommendations above are those of the expert, not of Mint. We advise investors to check with certified experts before making any investment decisions.