Market moves: Ashi Anand’s take on the Indian IT and auto sectors

“Unless we see a broader recovery in the US or global economy—likely spurred by a year-end rate cut cycle that could bring optimism and business revival—discretionary demand will likely remain weak. This is reflected in Accenture’s figures, and we expect to see similar trends in the coming quarters,” said Anand. Edited quotes:

ET Now: The Indian IT pack has seen a lot of changes following Accenture’s latest numbers, with a slight decline. Despite this, some brokerage notes suggest that this could be a positive for Indian IT, although the recovery may be slow. What do you take from these statistics and what impact might they have on the external-facing IT sector? If you want to play in this sector, would you favor large caps over mid caps, or what is your strategy for the Indian IT space?

Ashi Anand: Looking at IT, we have seen a clear trend in the last two-three quarters. Deal wins in IT companies remain strong, but revenue growth and guidance have been weaker than expected, mainly due to weaker discretionary spending.

Unless we see a broader recovery in the US or global economy—likely spurred by a rate cut cycle later in the year that could bring optimism and a business revival—discretionary demand will remain weak. This is reflected in Accenture’s figures, and we expect to see similar trends in the coming quarters.

The IT sector may struggle until discretionary demand returns. However, once there are signs of a global economic recovery and businesses are more willing to spend on IT, the sector, which has underperformed significantly in recent years, could become attractive due to its strong long-term growth prospects, high-quality companies and . Attractive valuation. We anticipate that discretionary demand will begin to recover by the end of the year.

ET Now: The auto sector has been in top gear for months but faced some pressure this week due to primary market activity and profit booking. With the sector trading above its five-year average and factors like strong SUV sales and rural demand for two-wheelers and tractors, how should investors approach the auto sector? Should there be a consensus approach for the entire sector, or are different spaces treated selectively?

Ashi Anand: Approach to auto sector should be nuanced. Our perspective varies between the short term and the long term. In the short term, the recovery of auto demand from the lows of Covid has performed strongly over the past year, and this momentum is expected to continue with the recovery of the rural economy and potential consumption growth in the budget. Investors in the auto sector should cherry-pick segments.

For example, Hero Motors could benefit more from rural recovery and see more interest in the two-wheeler space. However, we are concerned about the long-term perspective due to the transition to EVs, which could significantly alter profitability dynamics and market share. New players may emerge, and it is not clear how this shift will affect the profit pool and identify winners.

Because auto companies trade at high valuations, we are concerned that long-term disruption risks are not fully considered. Therefore, we view auto more as a cyclical recovery play rather than a long-term fundamental holding.

ET Now: How are you navigating the markets next week and what stock-specific thoughts would you like to share with our viewers?

Ashi Anand: As a long-term PMS, we don’t focus on week-to-week changes. For next year, we are keeping a close eye on the upcoming budget to understand possible changes in government spending.

So far, capital expenditure has exceeded revenue expenditure year after year. It may change depending on the election results. Last year, sectors like real estate, capital goods, infrastructure, railways and defense led the market, while consumption, banking and IT underperformed. We are looking for any change in tone in the budget that indicates a change in market performance drivers.

We expect this year to be more balanced than last year, with less divergence between capital formation-related market segments and laggards. Our portfolio is balanced across both sectors, and we will adjust our positions as we get clarity on new government policies.