Manager Speak: Mihir Vora, fund manager, Prudential ICICI Power
How much exposure do you have in infotech currently and what is your view on the sector?
We have pared our exposure to the IT sector from 23 per cent to about eight since the beginning of the year till March. This was due to increasing concerns about the global economy, indications of pricing pressures, perceived delays in large order wins in the sector, and the appreciating rupee. Our underweight position served us extremely well in the volatile month of April.
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Now, we feel that though this quarter disappointed on the whole, the pressure seems to be more on the pricing side rather than on volumes; especially for large companies. We expect volumes to start picking up in the next few quarters as key negatives like the Middle East crisis and the impact of SARS are getting resolved.
Current valuations of several large IT companies have started resembling commodity valuations. We feel that these discount significant potential negatives and we could be in for positive surprises in the sector's performance.
Your portfolio shows you are bullish on banks. However, with gains from treasury profits coming down, do you think banks are good long-term investments?
Our fundamental reasons for bullishness on the banking sector are: 1) balance-sheet restructuring, 2) extremely attractive valuations, 3) and long-term positive development for the sector in the form of the Securitisation Bill.
We do not view treasury gains as core/recurring income, and hence, these were not significant variables in our decision to get overweight on the sector. We feel, given the reasonably large universe of banking stocks, there are enough opportunities even now in the sector which offer good investment value.
What is your outlook on the heavy engineering sector, especially with reference to companies like Bhel and ABB?
There have been two key positive developments for the sector last year - one of which is very recent: 1) The signing of the tripartite agreement by a majority of states, and 2) the passage of the Electricity Bill.
We believe the positive impact of these developments on the sector has not even begun. We continue to be bullish.
Which sectors do you expect will outperform in future?
We are bullish on electrical equipment (engg/capital goods), banking, automobiles, ferrous and non-ferrous metals and refining/oil & gas. We are also watching the IT sector closely.