Don't see exuberance in markets; IT could see derating: Kotak AMC's Nilesh Shah

The market may be trading near record highs but given the divergence, one cannot term the upmove 'exuberance', according to Nilesh Shah, MD, Kotak Mahindra AMC.

"There are many stocks, among midcaps and smallcaps, which are still below their 52-week highs," Shah told CNBC-TV18.

The former fund manager also outlined his views on various stocks and sectors.

Earnings

Shah said earnings that have come out have been "so far so good". "The management commentary has been positive and GST rate reduction is already done, which is more favourable to consumer durable stocks."

He further said that the economy is also turning around. "Growth is coming back though the interest rate cycle is tightening."

Private consultants already mentioned that GST collections from now onwards will continue to surprise, he added.

Banks

Bank results and management view indicates that the provisioning cycle is coming to an end and accretion of non-performing assets (NPA) is likely to be far lower compared to earlier, Shah said.

"It is a buy depending on future growth, management outlook and execution of strategies," he said.

Avenue Supermarts

While he termed Avenue Supermarts as "undoubtedly a great company", he pointed out that the stock was trading at 70 times FY19 estimated earnings. "At current levels, if someone wants to buy, he will have to extend the investment horizon and go with a long-term perspective."

Aviation

InterGlobe Aviation started off the year on a weak note as it reported 97 percent year-on-year fall in Q1 profit on account of forex impact and higher crude oil prices, but the volume remained strong. "Operating income plunged 42 percent and margin nearly halved to 17.3 percent in June quarter," Shah said.

Airline companies, despite their strong volume performance, may not be able to sustain margin, according to Shah. "So one should revaluate the business process and check valuations before investing in these companies."

Technology

Tech Mahindra and TCS quarterly numbers were ahead of estimates while HCL Technologies and Infosys reported in line earnings in Q1FY19.

The Nifty IT index shot up 24 percent in the current year on top of 3 percent upside seen in the previous year.

Shah said a majority of technology stocks have moved ahead of their underlying fundamentals. "So there could be derating going ahead as these stocks are trading at higher valuations," he said.

The reason that these stocks have been resilient is because of fund allocation that has happened due to their defensive nature, he said.