Daily Voice: Vikas Khemani of Carnelian is bullish on IT, sees revenue revival in FY25

“We are highly bullish on the IT sector, as it offers one of the best opportunities to benefit from the US interest rate cycle,” said Vikas Khemani, Founder of Carnelian Asset Management & Advisors,  in an interview to Moneycontrol.

According to him, BFSI spending is picking up, especially in the US, and  tier 1 companies are reporting robust growth. He expects a revenue revival in FY25 in the IT sector.

Further, Khemani, who has more than 27 years of experience in the capital markets, believes that the prospects of the defence and railway sectors for the next three-four years are  fully priced in. Instead, he sees better risk-reward opportunities in banking, manufacturing, pharma, and IT.

Edited excerpts.

Will the IT sector’s performance surprise the market?

Yes, select IT companies have the potential to surprise the market with strong growth. We are highly bullish on the sector as it offers one of the best opportunities to benefit from the US interest rate cycle. BFSI spending is picking up, especially in the US, and tier 1 companies are reporting robust growth. We expect a revenue revival in FY25.

Do you think valuations are still expensive, even after  5+ percent correction from record-high levels? Does this suggest more selling is on the cards?

People who say the markets are expensive are often looking at India with a “reversion to mean” mindset, thinking that historical patterns will repeat. But India is in a transformation phase, and in such times, reversion to mean doesn’t apply. India is undergoing significant transformation. So, while the markets aren’t cheap, they aren’t expensive either.

Earnings growth is strong, and a structural revival is happening. Recent changes in Chinese monetary policy have prompted a reallocation of foreign flows towards China. This, along with the escalation of geopolitical tensions, has contributed to some market volatility. However, we anticipate a healthy time correction in the market and are not concerned about short-term outflows from India.

Which segments are looking attractive for investment right now?

We are positive about India’s structural story in the medium to long  term. There are opportunities to buy, but there is no need to hurry. Sectors like manufacturing, financials, and consumption looks attractive and are expected to perform well.

Do you expect the September quarter earnings to be better than the June quarter? Which segments are likely to see major earnings upgrades?

The September quarter might see some slowdown in earnings in comparison with the June quarter. Segments like IT and pharma should see earnings upgrades. We should not worry about the revenue growth trajectory. We should be company specific.

Have you started adding exposure to defence and railway stocks, which have underperformed recently?

No, we have not added any exposure to defence or railway stocks. We believe (the prospects) of these sectors for the next three-four years are already fully priced in. Instead, we see better risk-reward opportunities in  banking, manufacturing, pharma, and IT.

Are you more bullish on private banks compared to PSU banks?

We are very bullish on both private  and PSU banks. Select private banks and NBFCs with a strong liability franchise and technology remain the top picks.

What is your take on the RBI policy? Do you expect the rate cut cycle to begin in December?

RBI has done a fabulous job in managing the monetary policy. I think recent commentary has left the door open for a small rate cut. I would say there is a 50 percent chance of a rate cut. Frankly, more than a rate cut we need to see an increase in bank deposits at this point,  hence a rate cut might not really flow through the system.

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