Why JPMorgan's Ankur Rudra Is Cautious On I.T. Sector Stocks
Spending in tech services across the banking industry, is expected to soften in the next two or three quarters, he said.
JPMorgan Chase & Co.'s Ankur Rudra said he is "cautiously underweight" on the I.T. space because of risks in terms of earnings and multiples.
Recent corrections instilled fear of decrease in earnings while multiples remained relatively high, Rudra, head of APAC Telecom and India IMT Research at JPMorgan, told BQ Prime's Niraj Shah.
Concern on slowdown in I.T. services space in FY24, rooted from fears of a recession, have deepened after the recent Silicon Valley Bank and Credit Suisse crises, he said.
This further limits the expectation of double-digit growth in the I.T. space for a significant period of time, especially given the high exposure of Indian I.T. companies to banks in the west, Rudra said.
As a result, spending in tech services across the banking industry, irrespective of the size of the bank, is expected to soften in the next two or three quarters, he said.
With the earnings season around the corner, companies are more likely to be cautious on their guidance, according to Rudra.
Spending On Digitisation
After a brief pause, spending on digitisation is likely to resume in the coming quarters, Rudra said. However, the pace of spending remains to be seen.
After the pandemic, most companies accelerated their digitisation spends, but in an atmosphere of caution, chances of similar spending are now narrow, according to Rudra.
Since digitisation needs to be funded by saving costs elsewhere, there could be pricing pressure on maintenance projects, he said.
Specific targets might also change due to a change in perception of risks, given the period of significant volatility, Rudra said.
Role Of AI
While evolution of artificial intelligence, such as ChatGPT, can aid the I.T. industry in terms of modular coding and other software areas, it can also pose threat of disruption in the long run unless a beneficial way of co-existing is found, he said.
Themes To Focus On
Segments of the auto and life sciences spaces are seeing rapid growth, according to Rudra.
Engineering and research and development spaces are expected to grow more than I.T. in the next few years, he said.