Can Paras Defence's Order Book Growth Momentum Continue? | NDTV Profit
Category
🗞
NewsTranscript
00:00Sumit Pokharna, he's the VP of Fundamental Research at Cortex Securities.
00:04Sumit, thanks so much for joining in.
00:07Sumit, let's start off with your view on what you've made when it comes to TCS,
00:12firstly last Thursday, and now HCL Technologies.
00:15How are you reading at trends at the moment?
00:19Yeah, very good morning to all of you.
00:21Definitely, if you look at TCS, demand outlook remains cautious,
00:27similar to the past few quarters.
00:29However, the key business themes which have been seen across industries were
00:35cost optimization, vendor consolidation, customer experience transformation,
00:40supply chain modernization, risk and resilience.
00:43So what does that mean?
00:45It means basically the clients are spending on these spaces,
00:52so that is helping companies like TCS.
00:56So globally, clients continue to prioritize efficiency
01:00through cost transformation programs.
01:03But on the flip side, if you look, demand for discretionary deals
01:08with low immediate return on investment remaining relatively subdued.
01:13So this in a nutshell talks about the demand environment, how it remains cautious.
01:18So if you look at the stock prices or the market,
01:23investors have priced in a very good demand, and the hope has built up.
01:28So valuations of most of the IT companies have become very expensive at this juncture.
01:33All right.
01:35So while valuations remain a tad expensive at the moment, Sumit,
01:41your expectations from other names like Infosys and Wipro,
01:46which are also due in terms of earnings coming through?
01:50Yes. So we are expecting Infosys to...
01:54So broadly, there are two aspects to it.
01:57First is definitely the demand environment is expected to improve,
02:01but not immediately because the interest rate started cutting down.
02:06That is quite positive, particularly from the BFSI vertical.
02:10But there are geopolitical concerns which are also emerging.
02:14That is making clients a little nervous.
02:17Secondly, if you look, demand, as I mentioned, geopolitical risk,
02:25there are pockets where some signs of recovery is visible, like BFSI I just mentioned.
02:33Clients are getting some confidence due to interest rate cuts and better stability in macros,
02:39focused on the cost efficiency and automation.
02:43Now moving to retail vertical, which is led by travel and hospitality.
02:48Clients are cautious on macro.
02:50Supply chain, M&A and customer experience are the key priorities in this space.
02:55So far, manufacturing vertical is concerned.
02:58Demand outlook, pressure in the near term we are seeing due to labor shortage
03:03and supply chain, particularly in the auto and aero.
03:08Expect demand to pick up in the coming quarters after resolution of issues.
03:13So far, life sciences and healthcare is concerned.
03:17A couple of client-specific headwinds in the U.S. due to scope reduction,
03:21mainly on-site, as transformation work was reduced.
03:25So that's there.
03:27Now finally, on the telecom side, return on investment expectations are heightened.
03:32So that is a point to be noted.
03:35And high-tech clients are focusing on cost optimization and efficiency.
03:41So caution on capex and transformation investments.
03:45So in a nutshell, we can say that demand outlook remains cautious on macro
03:51and geopolitical situations, and auto and aero segments in manufacturing are vulnerable.
03:59Right. Sumit, also a question on the upcoming elections in the U.S.
04:04Do you think that could have some sort of bearing in terms of client decisions?
04:09Because from what we understand from management, at least,
04:12that they are suggesting that a lot of the clients want to wait for, well,
04:16further spending in terms of indication,
04:19even though the outcome of the election itself may not matter,
04:22but they just want to hold on to that.
04:24What is your reading in this case?
04:27Definitely this is a big event,
04:29but we believe that what is a bigger thing out here is that whichever government comes,
04:37the demand or the interest rate cut is quite positive for BFSI vertical,
04:45and Indian companies are just waiting once the discretionary spend starts picking up in the U.S.
04:51and other developed countries or client-centric regions,
04:55then they are going to get benefited a lot.
04:58I don't think it will happen irrespective of which government comes.
05:03If the macros are in line, then interest rate downward trajectory will continue.
05:10It's just a matter of time how quickly that happens.
05:13But we have already seen that the cycle has started,
05:16so there is no reversal back, nothing happening,
05:20but it is quite positive from a larger perspective of client spend on IT vertical.
05:26So what Indian IT companies are waiting for is the pickup in the discretionary demand,
05:31which is still subdued.
05:33As I mentioned, the clients are not interested in projects
05:36which have got a low return on investment in the short term,
05:39so they are just postponing those projects.
05:44Sumit, based on how things are and how things stand right now,
05:49how are you placed with respect to mid-cap IT companies
05:54and large-cap IT companies at the moment?
05:57Where do you think the preference is? Where do you think the stability is?
06:01We believe that valuations are very expensive at this point in time
06:06for mid-cap IT companies, for most of them, except for Coforge and Science.
06:11We are still bullish on that.
06:13So one needs to see that if somebody has to make a portfolio or a bet on IT,
06:19definitely they should focus more on the large-cap IT space,
06:22particularly Infosys, where the opportunity is huge.
06:27We expect, just to put things in numbers,
06:32we expect Infosys to raise their FY25 for revenue growth guidance
06:36to 4% to 5%, from 3% to 4%.
06:39So the guidance also implies that the momentum is moving towards more positive side.
06:48So that is there.
06:50Secondly, another positive factor which is helping IT sector
06:54is the rupee depreciation which is happening in India.
06:57So that is also positive.
06:59So coming back to your question, I think the comfort for me at this juncture,
07:04at these valuations, will be more with the large-cap IT companies
07:07rather than mid-cap IT companies.
07:10Alright. Well, on that note, Sumit, we leave it at that.
07:13Thank you so much for joining us.