Tech stocks may emerge as a dark horse with India's software services sector likely to have bottomed out in the last quarter, according to Julius Baer's Rupen Rajguru.
There has been pessimistic commentary and big tech companies are expected to report 0-1% earnings growth during April-June, Rajguru told BQ Prime's Niraj Shah. The sector has seen a reversal from expectations of a tech boom in December 2021 to being conservative on growth, he said.
"If valuations are not a significant premium, these [infotech] companies enjoy very high RoEs, they constantly do buybacks and have dividend yields of 3-4%," said Rajguru. "Market valuation will eventually adjust, and things are never as good or as bad as they appear."
The Nifty IT index has gained 2.94% since the start of 2023 compared to a 6.69% rise in the Nifty 50. Shares of Persistent Systems Ltd. and Coforge Ltd. have rallied 25.09% and 20.59%, respectively. Tata Consultancy Services Ltd. and Wipro Ltd. have remained flat, compared to Infosys Ltd.'s 11.68% decline.
Rajguru is optimistic about the Indian markets in general. They are valued fairly in the medium term, he said. Domestic benchmarks are likely to grow at a higher rate than the country's GDP in the next four to five years, given good macro and micro indicators and a possible "re-leveraging cycle", he said.
Despite that India doe not feature as one of the prominent equity markets among emerging economies, he said. China's loss has been more of Japan's gain than India's with respect to foreign inflows, according to him.
"In the near term, returns may take a pause, but within the next three to four years, they [capex stocks] will deliver returns higher than Nifty," said Rajguru.
Some pockets across the capex theme are on his radar.
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