IT Stocks Face A Risk, Metals To Cement Better Bets, Says Emkay Global's Karwa

Invest in companies that offer “reasonable growth” at “reasonable valuations” as the risk of going wrong is very high in overvalued firms, according to Emkay Global’s Krishna Kumar Karwa.

“I am not in the camp to buy growth at any price or that kind of a thought process,” the managing director at the brokerage told BQ Prime’s Niraj Shah in an interview.

Investors, he said, should compare the stock valuations with that from 10 years ago and assess the risk whether the market would “sustain these valuations”.

Karwa is hesitant to invest in Indian technology companies that are trading at high valuations in contrast with their historical average. The companies also face the risk of being hit by the U.S. recession amid rising interest rates.

“Most of our IT companies are U.S.-facing and 70-80% of their businesses come from the U.S.,” he said. While the order flow is currently strong, some of them may get cancelled if America is hit by a recession in the next 12-24 months, he said.

Metal stocks, according to the fund manager that leads the research, equity asset management and corporate advisory at Emkay Global, are in a “global positive cycle”, which is currently going through a correction. He is also positive on cement stocks in the medium term.

The balance sheets of most of the domestic metal companies “are as robust as they could have ever been. So, they will settle at higher valuations”.

Among other stocks, Karwa said banks and financial institutions, capital goods sector and automobile sector are good bets.

India markets, Karwa said, are performing well compared to the past when foreign investors moving out of the market would spook domestic investors.

“Domestic investors have become much more mature to understand that sometimes this FPI (foreign portfolio investor) selling is for various reasons, and may not be only connected to the local market environment or local economy.”

Watch the full interview here: