Are you surprised by the rally in various smallcap names over the last 10-15 days? Do you think that is where action is happening in the last 10 days and how markets have got re-rated?
Yes indeed markets have been very micro and smallcap focussed in the last few days. It is a little scary because the large caps are not doing that much. Some of the smallcaps have doubled in the last let us say 15 or 20 days. I generally find such situations typically shorter term in nature and either the largecaps catch up and the smallcaps moderate themselves or the whole market falls. So I would not put too much of a positive spin on it but it is a very retail investor led market right now. So enjoy it while it lasts.
What did you make of UltraTech numbers? We have seen margin contraction but there has been a beat when it comes to the bottom line?
I am not sure I understand the beat part. To be honest it is pretty but they have not paid taxes this quarter and so the bottom line looks better. But the pre-tax number is 33% lower in comparison to the same quarter last year. This time, of course, there has been some unseasonal rains and some other issues have been plaguing the construction market place including issues in NCR. But overall the numbers look lousy.
We are seeing real estate stocks go up and they have been going up the last few weeks and months but a company like UltraTech to have demonstrated this low level of margins, especially when they have been raising prices as well sounds a little strange. I think the company is overvalued substantially. The stock is up also today but the moderation in valuations has to come in for something that is growing at such a comparatively slow pace.
And what did you make of HCL Tech? What would you recommend?
Markets are saying if you are not as stellar as your competition then we are going to cut down the company to size. But the short-term moves do not matter so much. There is largely noise in the overall scheme of things. HCL Tech results were not ridiculously bad. The midcap IT pack has much more margin compression than HCL Tech has and while the margins came a little bit lower than last quarter, over the last year, the margins have moderated from 27 to 24. The company may end up rebounding as time goes by. So I would not place too much weight on it.
We do not have ownership in it though we have ownership in a bunch of IT stocks but I do expect midcap IT earnings to be far more negatively impacted specifically on margins compared to HCL Tech. So it does not come to a buying opportunity yet, but let us see how the…
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