Subdued TCS, HCL Q1 Results Reflect Demand Environment, Says InCred AM's Mrinal Singh

The quarterly results of certain information technology companies are reflecting the challenging demand environment, according to Mrinal Singh of InCred Asset Management.

However, the domestic economy is well-positioned for growth and will outshine other emerging markets even as global growth and the U.S. in particular may introduce some volatility in the domestic markets, Singh, chief executive officer of InCred Asset Management, told BQ Prime's Niraj Shah.

The consumer price index inflation data, released on Wednesday, raised some concerns as it was slightly higher than expected, Singh said. But the U.S. market reacted positively to its 4.8% core inflation rate, which was lower than expected, Singh said.

With the market reaching new highs and the release of Q1 results by two major IT companies—HCL Technologies Ltd. and Tata Consultancy Services Ltd.—investors are looking at pockets that exceed the overall growth, he said.

The subdued results from the two information technology firms reflect the current demand environment, which did not come as a surprise, according to Singh.

As for the sustainability of the market's high valuations, the growth trajectory will attract a significant amount of investable capital, according to him. If U.S. inflation remains benign, foreign investors will show interest in emerging markets, he said.

While liquidity may temporarily affect prices, ultimately they will depend on earnings and growth, Singh said.

Due to the impact of liquidity, there may be a delay in earnings growth, resulting in time-based corrections in the market, he said. He referred to the time-based correction that occurred in FY23, where the one-year Nifty return, as of March 31, was approximately 2%, indicating minimal movement.

The upcoming period will witness the realisation of growth from capital expenditure and manufacturing initiatives, which will reflect in earnings over the next two years, according to him.

Despite the weak performance expected in the IT sector for the next one or two quarters, investors should increase their weightage in the portfolio over the next three to six months as prices adjust to valuations, Singh said.