IT Stocks | Sandip Sabharwal: It is not the time to buy IT stocks yet; more downsides likely: Sandip Sabharwal

There is too much pessimism in IT now. That is the time to buy, isn’t it? The market is forgetting that these stocks are available at 3-4% dividend yields?
It is not the time to buy because everyone is looking to buy them. There is pessimism in terms of price movement but when I track investor sentiment, it is not that people are saying no, no, we do not want to touch IT, it is that people are saying that we will buy today, we will buy on every dip. I think that scenario is playing out.

No analyst has downgraded earnings till now when the writing’s on the wall. Some have downgraded the outlook and price targets but not actual projections of earnings. We saw what happened to a company like FedEx when they downgraded their expectation. Such a large megacap fell 20% in one day.

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So, one still needs to be wary about technology companies. Indian companies are good, cash rich and with high dividend yield. All those things are there but if we enter into a scenario where instead of earnings growth, there is going to be earnings decline, then valuations is what we need to be ready for. I would still think that there are downsides in these companies.

You have been tracking the ethanol story for a while now. While and Triveni continue to be your erstwhile favourites, what are you making of a Renuka expanding its ethanol capacity?
Renuka has been most aggressive in expanding their capacity. I do not think they have the full capacity of further cane juice. That is the risk they run in terms of overall profitability potential. Next four, five years should be very good in terms of traction in the ethanol segment because even now, we are at half of what the government is targeting. There is potential of ethanol blending with diesel also with the new technologies.

Overall, it is well placed and could do well although I do not track Renuka myself.

Ethanol companies are commodity companies. When sugar prices came down, Balrampur also suffered. They have the advantage of no debt, ethanol, skill, scale and size. But the numbers for the quarter gone by reminds me that a commodity company is a commodity company?
Yes, that is true. You cannot have a buy and hold strategy for commodity companies. It is easier said than done. You have to buy them low and sell them high. People say you keep on buying these companies at any price and that is true for any company, but more so for commodities. Obviously, the run up was too aggressive but now with the correction, something like Balrampur is at reasonable valuations.