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Despite tailwinds, don’t go overweight on IT: Santosh Singh

Just hold IT stocks because of rupee depreciation and the macro situation, don’t go overweight, Santosh Singh, BFSI & Head of Research, Haitong Securities, tells ET Now.Edited excerpts: From an investment perspective, how are you treating IT given that TCS has put the benchmark really high?You can see a lot of tailwinds for IT. Fundamentals have improved as IT spend in key markets like the US is going up. At the same time, the rupee depreciation is helping them a lot. This year, the rupee has depreciated almost 7-8%. If we look at last three-four years, TCS is one company that, barring a few quarters, has outperformed the IT sector. We need to look at what the broader IT sector is doing. Infosys result will help us understand if there is a clear tailwind across the board or it is there only for some companies who are benefitting from increase in IT spend. Rupee is definitely a positive for the entire sector.The valuations are demanding but given the rupee depreciation and the macro situation, this is one sector which one needs to hold. You cannot go extremely overweight on IT now.Isn’t it too late to consider going overweight now because on average, largecap IT companies have run up 15-50%? Do you think the train has already left the station for the value investor?Yes, that is what I was saying, that you should not be highly overweight on IT, now you should just hold IT stocks because of the rupee situation and the macro situation. If Infosys comes up results that show that there has been a fundamental improvement there, this means it is a sector where you can be equal weight or you can hold given the macro situation.When it comes to financials, for the longest time we have argued for private banks and pushed for an avoid on PSU banks. But now, within the financial space a lot of sub pockets are getting created. What are your top ideas within the financial space minus the four, five private banks which are like a consensus view for everyone?Our top picks within the banking space are not the four, five consensus stocks because the valuations there have moved up. In the last two three months, when the entire flow was moving into 10-15 stocks, all the money moved into those stocks and the valuations got much richer there. So, we are talking about corporate banks and State Bank of India is our top pick.SBI is our top pick and it has not worked this year simply because at the beginning of the year we saw the scam and that created some sort of a panic within the corporate banks themselves. But that remains our top pick. Even within NBFCs, we have initiated on small stocks like CanFin and Repco. Stocks like Repco has seen some fort of pain over the last one or two years because of demonetisation. Now with demonetisation impact tapering off, these companies will benefit a lot. Life insurance is another area which has been out of focus. In the last six, eight months, most of the stocks have underperformed significantly. We think for a long-term investor, it is going to be a 23-24% compounding story. We like Max Financial and HDFC Life.How would you play the insurance story, is it a buy even at these levels or if you have bought in the past just hold on but entering at this point may not be feasible?Most of the life insurance stocks have come off at least 25-30% this year. There has been quite a lot of correction within the life insurance space. Max is trading at sub 2 EV now, ICICI it is almost around 2 times EV. At these levels, I would really go out and buy these companies because these will be growing and profits might grow in excess of 20% for multiple years. That is why the valuations today are much more attractive.

Source: ET

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