Let us start our chat with the capital goods space. We all know that in last one or two months, many of our friends in the industry have been trimming some of the top quality capital good names because the valuations have become way too high on the higher side. But look at the way Cummins earnings were commentary. Today ABB too, good strong numbers, strong commentary. And some of these names have gone through a bit of a correction, a shallow one. What do you think of it? The prices and valuation will justify because of the kind of solid performance they are putting in some of these names.
Sandip Sabharwal: From the company conference calls from whatever I have attended across the board, it looks like the pipeline of orders or the visibility of growth seems to be strong for many of these companies for the next two-three years at least, both domestically and those who are in the international markets internationally also.
However, like you said at upfront that it is a question of valuations, like it is a valuation mismatch vis-a-vis what might be the immediate delivery. And to that extent, near term upsides will be limited in all these companies. And if there is a market correction, then I think they could correct more. So, people should wait. So, whoever owns them, largely there is no reason to sell. Like if you have bought it really cheap, then you do not want to sell it and if there is a 10-15% correction. For those who want to buy afresh, I think it will make sense to wait out.
What the expectation is from Ola Electric. All eyes on this one, the listing today. And while when just about a few days ago, we were talking about an 18% to 20% premium expectation, and now basis the kind of data that we are getting in the grey market, expectations are that it would be pretty muted. What is your view on Ola Electric?
Sandip Sabharwal: My view is not positive on Ola Electric because in my view the business model which they have, the sales, like the profitability if you measure it vis-à-vis sales and you actually extrapolate it for any time in the future, you will realise that it will be tough for them to ever make profits. So, then how do you value this company has been a challenge for me.
And to that extent, I would think that whoever is betting on it, it is like the fundamental basis is missing because they will continuously lose market share over the next two-three years. The change in the incentives regime also will not favour it so much. So, I think it is going to be a tough ask. So, if they deliver over the long run, then it might perform, but I do not really see any triggers.VA Tech Wabag came out with results. Look at that, 13% margins, higher by almost 110 basis point, 25% EBITDA growth and 15% kind of top line growth. What do you make of the performance this quarter?
Sandip Sabharwal: Performance seems in line with expectations, like I think they have been guiding for improvement in profitability which played out, they have been guiding for improved execution because last year the execution was lower as they shifted focus from not doing too much of construction. And I think they are well on the way towards achieving what they have guided. Now, we need to get more insights in the conference call as to the order bookings, etc, because for many of the capital good and infrastructure companies, the first quarter has been muted in terms of order inflow. And they have guided for aggressive order inflow for this year. So, we need to see what they are saying on that.
Interesting news bit that foreign portfolio investors have purchased nearly $1.4 billion worth of IT stocks in the month of July, that is the highest actually that we have seen since April 2022’s reclassification. And this has been attributed to the anticipated US rate cut as well as positive earnings from the likes of TCS and Infosys. Your stance on IT?
Sandip Sabharwal: So, IT, we have seen that there has been a substantial run up. Most of the stocks have run up by around 20% from where they were a couple of months back in the anticipation of a recovery cycle playing out. However, as we see things today, the upgrade in earnings has been there, but it has been 1% or 2%. So, I think for that, the move which we have seen in IT, in my view, is sufficient. Today, there are mixed views on the US economy. On one side, there is a view that recession has already started and it could play out over the next few months. There is another view that there could be slowdown and that is why there will be aggressive rate cuts. So, in this scenario and in the run up to the presidential election, it is tough to make a case that IT spending will actually substantially improve. So, I would think that most of the positives are in the price now.
