Commodities News

Is it opportune to move from IT to commodity stocks?

Asit Manohar

Stocks to buy today: After ushering in new year 2022, IT stocks have been underperforming. IT majors like TCS, Wipro, Infosys and HCL Tech shares have given zero return in 2022. In YTD time, TCS share price has dipped from ₹3815 to ₹3615 apiece levels, logging over 5 per cent loss in this time. In 2022, Wipro share price has crashed around 25 per cent, Infosys share price has tumbled around 16 per cent whereas HCL Tech shares nosedived near 17 per cent. According to stock market experts, barring few IT stocks, most of the IT shares are expected to continue underperforming in short to medium term. They said that IT companies are expected to feel the heat of lower margin and higher attrition in short to medium term.

Speaking on the reasons for underperformance by IT stocks in 2022; Santosh Meena, Head of Research at Swastika Investmart Ltd said, “IT stocks have started underperforming due to factors like employee attrition, global headwinds, margin deterioration due to increased cost, reduced pricing power, and higher valuations compared to the broader index. We believe that the underperformance will continue in the short to medium term.”

Santosh Meena said that IT stocks are currently at much higher PE multiple of their last 5 year average PE. So, long term investors can accumulate quality IT stocks on every big dip and hold the stock for long term for whopping return. However, for short to medium term investors, he advised them to look at other options like commodities, infrastructure, capital goods sector and banking.

Highlighting at higher valuations of the IT stocks; Siddhartha Bhaiya, MD and Fund Manager at Aequitas Investment Consultancy said, “In the IT sector, the demand will remain strong, but there will be margin pressures given the never seen before attrition levels in the IT sector. There has been a complete reset as far as the wage levels are concerned in the IT sector. The IT stocks were available at 10 to 12 times earnings in 2016. Today, they are quoted much above their PE levels than they are quoted historically. We are neutral about the IT sector.”

Batting strongly in favour of commodity stocks; Siddhartha Bhaiya of Aequitas Investment Consultancy said, “We have been very bullish on the commodities sector since last two and half years. We have significantly overweighted on the sector, as a whole. Majority of the fund managers massively underweight the commodities sector. The various sub-sectors like sugar, agri – commodities, oil, paper, metals, etc. are interlinked. There has been no new investments happened in the commodities sector, globally. While the prices of commodities are rising, on one hand, there is a huge demand for commodities and on the other, there is shortage. This scenario will drive the sector in short tot medium term.”

“We foresee a multi-year rally in the commodities sector. We are bullish on the agro – commodities, steel, paper, sugar, aluminium stocks,” Siddhartha Bhaiya of PMS Advisory firm said.

Commodity stocks to buy

On commodity stocks to buy today, Siddhartha Bhaiya said, “One should look at the stocks that are market leaders in their respective segments. One can buy stocks like JK Paper, JSW Steel, Tata Steel, Hindalco Industries, Balrampur Chini, Renuka Sugars, Coal India Ltd, NTPC, etc.”

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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