ONGC a tactical play; cut position in IT: Kohli

IT stocks are transactions at 10 -year high-pitched various and undoubtedly there is no further scope of re-rating of numerous. If the earnings growing is slightly lower than the expectation, we might identify some kind of profit booking in these inventories, says Daljeet Singh Kohli, CIO, Even if the IT business continue to perform well, will we insure an EPS upgrade? How would you approach IT stocks this earning season? From last week onwards, we have started reducing our positions in IT stocks. It is not because we have any concern on the rise segment which we reckon will be pursued running by Accenture amounts. Our concern is more on the cost side where there might be some risk because the wage cost is just going through the roof for all these companies. The kind of retrenchment and attrition these companies are looking at may lead to a very huge spike in the payment cost and ultimately that will have an impact on earnings expectation likewise. All these assets are transactions at 10 -year high severals and obviously there is no further scope of re-rating of severals. If the earnings expansion is slightly lower than the expectation, we might ensure some kind of profit booking in these inventories. So, we have already started reducing some postures but we are still positive on specific sectors. If the companies are able to pass on these hikes and maintain that earnings trajectory, then probably after some time and on amendment, these assets will again become attractive. What about the cyclicals which have been making a comeback? The information out of China has so much of it has to do with the spike in oil and gas assets. Do you think the upside on inventories like ONGC will be limited after the latest move? If crude oil continues to boil the practice it has is being done for the last one week, then there is no reason for the upside to be covered. ONGC or these upstream business have two benefits; one is that oil itself is going up — $ 80 dollars now — and there are all sorts of projections of it going up to $ 100. So these are direct recipients of that. Second, gas rates have gone up over 60%; even the administered premium has been an increase by 60% and spot cost is far higher than that. So though the contribution of gas is much smaller in these companies, but still it is going up by 60 -7 0 %. That itself will entail a huge jump in the administered gas toll will result in up to 14% an increasing number of the earnings for these companies. So there is a huge potential and both sets of broths Oil India or ONGC are trading probably at the world’s lowest valuation, EV/ cannon. For the past eight, 10 years they have not performed and so there is a huge runway in these furnishes. We are not buying them because they are PSUs. We “re looking at” these as tactical buys and we also have to be very clear that the price of oil will not continue to remain at this degree. The price of oil actually converts more with politics less with necessitate and render. So demand and afford is a misnomer there. We have to be very clear that this is only a tactical play till the time crude rate goes up and gas cost goes up and the government does not interfere in their pricing parity. Then these companies will make money. So we can not simply taking a call for three years, we are taking a call only for this period when this is going up. Done with the revival, make the potential benefits and move on. We have been talking about how the entire reopen trade — everything from multiplexes to hotels to even some retail applicants — have done very well. Where are you finding comfort to buy afresh? We are not really buying afresh in some of these refers but we are already comprising a bit of them and we are continuing with that. We are just adding one call, Stovekraft. You can call it a reopening busines or a intake represent and on Tuesday, we have increased the allocation too. We thought that this would be a good asset to be addressed and the kind of margin expansion this companionship is showing, makes it clear that cost sees are very much in place.

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