Dalal Street Voice: Many Indian IT companies on cusp of multi-year growth trajectory: Tarun Birani of TBNG Capital Advisors

Tarun Birani, Founder CEO at TBNG Capital Advisors said that India's IT sector has a healthy order book and growth levers are in place which puts many companies on the cusp of a multi-year growth trajectory.

Birani brings with him rich and extensive experience of more than 25 years in the financial planning and wealth management space. The firm manages over Rs 400 crore AUM across financial markets.

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In an interview with Zeebiz's Kshitij Anand, Birani said that for FY23, we are extremely mindful of how the Central Banks over the world deal with the inflationary risks and the impending rate hikes. Edited excerpts:

Q) The Nifty50 closed FY22 on a strong note with double-digit gains. How do you sum up FY22 and what are your expectations for FY23?

A) The first half of FY22 delivered strong double-digit gains for the Nifty50 due to the re-opening of the economy post the 2nd Covid wave and resumption in normalcy.

However, the 2nd half of FY22 saw massive volatility due to geopolitical issues, and inflationary pressure which kept the performance muted.

On an overall basis, the Nifty50 has still delivered handsome returns for those who remained invested throughout the year and beyond.

For FY23, we are extremely mindful of how the Central Banks over the world deal with the inflationary risks and the impending rate hikes.

There could also be some pressure on the markets due to the supply-side shocks caused due to Russia-Ukraine crisis.

Q) At a time when leaders are discussing tougher action against Russia, markets have remained relatively stable. Trading on Russia bourses also started. Do you think the worst is factored in by equity markets?

A) Even if you pick up the data from the past wars, markets have very quickly absorbed the immediate shock of these events and have moved on.

But that doesn’t take away from the fact that the longer this conflict extends, more there will be a longer-term impact on the humanitarian and economic level.

Also, to add to that, there is a rate hike expected across various countries which will also affect the markets.

Thus, while markets have factored in many of these factors, there are still some reasons to be watchful as the 2nd order impact of these events unfold in terms of the increased cost of capital, supply-side constraints, stagflation risks, etc.

Q) Which sectors are likely to be in focus in FY23 and why?

A) Generally, the Banking and Financial Services sector with structural tailwinds tends to do well in a stable rising interest rate environment.

Also, there has been recent underperformance in the banking sector which has made it attractively poised for the next financial year.

Apart from these, there continues to be healthy order book and growth levers for Indian IT sectors with many companies on the cusp of a multi-year growth trajectory.

However, one must be wary of valuations and be selective in picking up the bets.

Q) Anything which investors should do differently in the new financial year?

A) Given the volatility expected along with various factors which could pull the market sideways, this year could be a year of consolidation, flat to moderate growth and more importantly constructing portfolios for the next few years.

Investors must take this into cognizance and accordingly modify their expectations and focus their energies on building a portfolio for the next leg of growth.

Q) In the precious metal space, we saw 17% rally in Gold, and over 70% upside seen in the Silver. What is your view on precious metal space in the new year? How should investors go about investing – digital or physical route?

A) Calendar year 2021 was muted for these commodities and the majority of the rally that we are seeing had firmed up in the last few months on the back of turbulence seen in the equity markets and also the geopolitical challenges materializing.

Gold traditionally has always acted well as an inflation hedge during times of volatility and possibly the worst might not be over for the equity markets yet due to the reasons mentioned earlier.

Hence, both the commodities with higher weightage to Gold can continue to form part of overall asset allocation as it helps reduce the correlation of the overall portfolio.

Apart from social use and consumption purposes, one must always prefer the digital route due to many benefits in the form of savings in storage costs, better liquidity and many other benefits.

Q) At Zeebiz we celebrated March 24 as Wealth creation day as it was a day when the Nifty50 made a bottom in 2020 and since then it has been a wealth creation opportunity for investors. What were your key learnings?

A) It’s probably one of the most overused lines but still continues to be true – “Markets have a tendency to remain irrational longer than investors having the ability to remain solvent.”

On 24th March, no one could predict whether the bottom had been reached, and even after the rally that followed, there was always uncertainty regarding earnings, re-opening of the economy, vaccines, etc.

My key learnings were in terms of the right asset allocation and the importance of having cash/cash equivalents in the form of emergency reserve. If people had remained invested throughout that volatile period, outsized returns were created in most of the asset and sub-asset classes in the ensuing bull markets.

Eventually, markets move in cycles and while it’s always good to find the best companies, and funds to invest in what is equally important is how the macro parameters are impacting the portfolio and markets and create structures that minimizes the chances of panic selling.  

Q) Some global rating agencies have downgraded GDP forecast for India – will that impact markets and earnings trajectory? What are your views?

A) Due to the global events, India wouldn’t be the only economy that would see a downgrade. There will be many more economies we will see being impacted due to the sanctions, crude rally as well as other factors.

In the short run, there are a lot of moving parts in terms of currency, crude oil estimates, and its impact on Current Account deficits, exports, etc.

Also, in terms of earnings trajectory, margins will get squeezed and thus we would see downward pressure of earnings if the conflict continues or for that matter inflation doesn’t come under control due to planned rate hikes.

But, it is too early to comment in terms of whether the current events will end up impacting the earnings as well as GDP growth for the entire year.

Q) BSE has now 10 cr registered investors on the website – what does it say about the investment climate which has evolved over the past 2 years?

A) While the increase of retail investors and the overall share of equity in the household savings has been a long-term trend, but the last 2 years with retail participation, increased awareness due to social media, technology and convenient investment options has accelerated this push much faster.

Despite this push, the overall share of equity in total household savings is still at around 3-4 percent which is significantly lower compared to other countries – both developed and undeveloped.

As we build more awareness of equities as a healthy inflation hedge, improved regulation, and increased investor trust, this number is only set to get much higher from hereon.

(Disclaimer: The views/suggestions/advice expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)