Sandip Sabharwal stocks: Wait for the right opportunity to buy IT stocks: Sandip Sabharwal

“I think three-four airlines can co-exist. We have IndiGo doing well and Vistara has also been doing well but Air India is still to revive. So next two years IndiGo should do well, after that we need to see,” says Sandip Sabharwal,

Air India is looking at a massive fleet expansion and Air India, Vistara put together would be a giant. What will that do for the aviation sector and what do you think that means for our listed player like IndiGo?

Air India and Vistara in the new avatar will be in a different space of full service airline. The good thing is that Air India has been losing market share continuously over the last two decades so I think that gets arrested and we see a move to the other side. It improves the competitive landscape and is good for consumers but for also it is fine. InterGlobe is in a good space, passenger numbers are expanding rapidly in India, pricing also is very strong right now and fuel prices have come down substantially.

Two years later we can re-evaluate this competition from the other players who also have deep financial stress. So I think three-four airlines can co-exist. We have IndiGo doing well and Vistara has also been doing well but Air India is still to revive. So next two years IndiGo should do well, after that we need to see.

The IT sector is going through a massive derating for variety of factors but what amazes me is that which is a cheaper stock in terms of PE multiple has fallen the lowest and and which are expensive stocks have fallen the least.

Wipro’s underperformance is understandable because they have failed to deliver even when not only the leaders TCS and Infosys, but the other smaller companies did very well.

You look at L&T twins, MindTree, Persistent or a slew of other midcap companies, they are doing very well but Wipro still is not doing well. So I think there has been a severe de-rating so it is a cheap stock and it could remain cheap for some more time. Now somehow many of the analysts believe that Infosys will be able to weather the storm which is coming and most analysts have a buy on Infosys while some have started turning negative on TCS which itself is quite intriguing because it is the entire ecosystem which will see a stress.

I think next as the managements accept this and the earnings get downgraded at that time we will get opportunities to buy these stocks because these are strong companies with strong cash flows, they give good dividends, they keep on doing buybacks so these are not stocks which you sell and forget, you wait for the right opportunity to buy and today is not the right opportunity.

There are a variety of opinions on should actually consider a buyback. If you do a buyback you are using your cash and management is indicating this to the market that we are no longer a cash burn company, we are standing on our feet. The other argument is that look, it is not the managements job to keep an eye out on stock price they should be using their cash, add more growth, get in more efficiency and markets will automatically reward the stock price eventually if there is growth.
I remember the statement of the CFO of the company at the time of IPO when they said that we have left a lot on the table for the investors and the stock was down 75% from that price. So I think they have a continuous eye on their share price which is a wrong thing. Secondly, doing a buyback by a company which is losing thousands of crores every year is completely bad corporate governance. I do not think the board of directors and independent directors on the board should allow this from happening. They have just said that they will consider a buyback, it is not certain so let us hope better sense prevails.

Cummins and have both managed to hit it out of the park. Varun Beverages is up 100%, Cummins a big outperformer, are they in for another strong patch? What has worked in the past may also work in the future, I mean, they could be like the trending stories for the next two, three years?
They could be. There is a very high probability that happens although the stocks are not cheap right now but if the business fundamentals keep on improving then typically the stock prices keep on performing till there is deterioration in performance. In the near term that deterioration in performance might not happen and to that extent they could continue to outperform. But the only thing which the investors should be ready for is that when stocks go up in straight line, corrective moves also are very sharp. So whoever is buying now should be willing to take a deep cut in the short term in the hope of making bigger returns in the long term.

The stars of the last cycle which were and have entered into serious time wise correction. PSU banks have really hit it out of the park, when will that interchange start again?
I think that interchange could happen at some stage but the point is that some of these stocks like Bajaj Finance, Kotak Bank are even now not cheap although HDFC Bank is relatively not so expensive now given the sharp period of underperformance. So actually if the markets do not do much and they end up correcting a bit next year or remaining flat then HDFC Bank could actually outperform but

is still very expensive relative to the entire financial space. It trades at twice the valuations of the nearest top bank so I do not think that is sustainable in a period of rising interest rates where NBFCs typically have a disadvantage over banks.

Do you find comfort as an investor in any of the AMC stocks?
See, AMC stocks are relative cheap vis-à-vis what they were two years back when they were extraordinarily expensive and they benefit due to passive investment by retail investors where SIP flows continue irrespective of how the performance is.

And to that extent some of the AMC stocks are relatively cheap right now but I am not a big fan of them given the fact that most funds have been underperforming the indices but relatively they are cheap stocks. So something like

is now cheap relative to what it was two years back when it was very expensive. The AUMs are much bigger, the stock is down 40-50% so there is potential for some returns.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

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