The One Thing Nilesh Shah Says Gives IT Stocks The Edge Over Specialty Chemicals, Pharma
“As the IT captains are explaining, if this growth momentum continues, there is still some juice in IT sector,” Shah said.
Sectors such as pharmaceuticals, specialty chemicals and information technology are likely to continue to grow in the future. But, according to Nilesh Shah, there is one factor that separates IT from the rest: valuation.
Specialty chemicals and pharma stocks are factoring in a lot of positivity at the moment and not considering the possibility of ups and downs, the group president and managing director of Kotak Mahindra Asset Management Co. told BloombergQuint’s Niraj Shah in an interview.
“While a business may continue to grow over the next couple of years, the share price may still show a little bit of volatility. At this valuation, they are pricing in almost all the growth,” he said.
Technology stocks, on the other hand, though have moved up from their lows, are not as expensive, Shah said. Pharma and chemical stocks contribute far less to corporate India’s profitability pool and yet have a higher percentage of market cap. IT contributes far more to the profitability pool but has a lower market cap.
“As the IT captains are explaining, if this growth momentum continues, there is still some juice in IT sector,” Shah said.
Indian Economy
About how a fiscal stimulus can impact India in terms of global fund inflows, Shah said the country should not be too worried since most economies across the globe are expanding their fiscal deficit amid the coronavirus crisis.
- India’s fiscal deficit should be looked at in relative terms.
- Every country on earth is today raising the fiscal deficit to support their economy.
- India is probably one of the few countries which can fire multiple bullets to take care of the recovery.
- With the 10-year bond yield at 6%, there is immense room for rate cuts.
- India’s large gold reserves should be leveraged in banks by way of gold amnesty schemes to kick-start growth without any worries of bad loans.
“We have many options available to us, from the monetary side, gold amnesty side, monetisation of assets side or even divestment,” Shah said.
Hours after he said this, Finance Minister Nirmala Sitharaman announced a set measures in the hope of front-loading consumer spending and capital expenditure in an economy that's headed toward its first full-year contraction in more than 40 years.
Watch the full conversation here: