Telling clients to be cautious: Edelweiss

We are arguing that you should build a portfolio towards stuff that is a little bit more defensive, says Aditya Narain, Head of Research. There is liquidity, a surge in gold and a strong view in the market that the worst is behind us. But there is also a strong view that markets are not factoring in FY22, they are factoring in FY23 and FY24. What are you telling your clients to do in this market?Our fundamental advice to clients is to be a little cautious. Our market target for June next year is actually a couple of percentage points lower than where we are at this point in time. We are arguing that you should build a portfolio towards stuff that is a little bit more defensive. The key stance that we are taking is that FY22 is going to be a normal year. If you want a benchmark earnings or multiples we have to look there but let us not look at supply. There is a lot of excitement in the market because supply has gone up, capacity utilisations have gone up and this is just a reversal from disruption. The bigger thing is what this disruption has done to demand? There are two ways of looking at it -- one is to look at it from an absolute demand perspective which we believe is hard to do and the other is to look at the drivers of demand and the themes to play. That is the way we would approach the market which has fundamentally changed from a demand perspective. Those are the things that are going to drive stock performance, rather than the absolute level of the market or the absolute level of demand coming back. Are banks in for a rude surprise when the moratorium window will get lifted or are the concerns in the market slightly exaggerated?I do not think it would be a rude surprise but that will be the starting point. The challenge will not be in terms of how deep the problem could potentially go. The problem will be that it can tend to linger on for longer and it could be a little broader than otherwise. That could combine with the fact that loan growth itself could be low. If you take that combination at a sector level, we are running an underweight portfolio strategy weightage and we are trying to play the higher quality banks on this. Again, I would say a rude surprise would be a real surprise to me quite honestly simply because there is so much expectation on the uncertainty of it. The fact that it could linger a little for banks to have the appetite to lend and so growth will be missing. Those will be the variables rather than necessarily the depth of the problem. The IT index is up 20% in July thanks to the numbers from the top four-five tech companies. Is the one-time re-rating behind IT?This is a one-time reset and I do not think you should see it in the context of numbers for the quarter being better than what people are expecting. The reason why IT is doing as well as it is and in our view, it will continue to do well, is the fact that this disruption has given a leg up to the technology in the IT space. This trend is going to be a two, three, four year trend or momentum, rather than something that you can measure in terms of the quarter being better than expected or the quarter being good enough. From our strategy perspective, this is an underlying theme and there is a quarantine acceleration in the importance and the growth of the broader IT space. We have been looking at IT in the form of services. It is going to be more correlated with the technology expansion that has been happening for a period of time. The second thing is in terms of having been surprised that such a manpower intensive sector has been able to work from home so effectively. All of us have been able to adjust to the new reality pretty smoothly and very effectively. In that context, I think, they were probably better here for a shift like this amd I would tend to believe this has been one of the big positive outcomes.

from Economic Times https://ift.tt/310ShXV