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IT valuations back to Pre-Covid levels, long-term case strengthens: Karthikraj Lakshmanan
When asked about the changing dynamics in the sector, Karthikraj Lakshmanan from UTI AMC in an interview to ET Now emphasized the opportunity created by the correction. “Like you rightly highlighted, I mean the valuations are quite attractive. They are comparable to pre-COVID levels… So, the valuations-wise they are quite attractive and fundamentally we know these are companies generating huge cash flows… The growth last couple of years has clearly been challenging, but hopefully that should pick up in the coming quarters,” he said.
He noted that the outsourcing opportunity remains intact and that Indian IT companies are positioned to benefit as global demand normalizes.
Largecaps vs Midcaps: Where’s the Edge?
The debate between scale and agility continues within IT. Lakshmanan acknowledged that growth rates for big firms will be calmer but said valuations reflect that reality. “The mid and small companies can continue to grow in double digits… We would believe for higher growth some of these mid companies do look attractive, but the large also are attractive purely from a valuation perspective,” he observed.
Consumer Durables & Retail: Momentum Not Over Yet
Post GST rationalization, consumer durables and retail stocks surged. While some worry the rally may have already priced in the positives, Lakshmanan believes the structural story is far from over.“From a penetration level and looking at urbanization, the premiumization trend, and growing upper middle class… the discretionary space is favourable from a next 5- to 10-year perspective,” he said, adding that although valuations are expensive, growth prospects justify selective optimism.Within consumption, durables, retail, and autos remain on his radar. That said, he cautioned that autos have already absorbed a lot of the good news.
Financials Back in Favour
Discussing fresh value pockets in the market, Lakshmanan said private banks remain appealing. “Financials is other space where we would be positive, especially the private banks where the valuations are still relatively attractive… Growth did dip some time back, but it is again back to double digit,” he highlighted, stressing stable asset quality and favourable liquidity.
Earnings Outlook: Turning the Corner?
Q2 earnings surprised on the upside in several segments, and Lakshmanan expects the recovery to build. “Though expectations are right now for pick up in second half… this quarter is more or less stable and expectations are that it should pick up,” he said.
He pointed out that low nominal GDP due to a soft deflator has weighed on numbers, but this is expected to normalize by FY27. “Expectations are for a more than mid-teens kind of earnings growth in FY27… we should still see an acceleration from where we are at this point in time,” he added.
