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CNBC
6 days ago
- Business
- CNBC
Buy or avoid India's IT stocks after recent job cuts? 3 pros share their take
Job cuts and muted earnings in India's IT sector have left some investors wondering if they should steer clear of such stocks. Tata Consultancy Services , one of the country's biggest private sector employers, announced last month that more than 12,000 staff in mostly middle and senior management roles would be cut. That accounts for around 2% of TCS' global workforce, making it one of India's biggest IT layoffs thus far . The company attributed the layoffs to mismatched skillsets , but others cited automation as a factor. Elsewhere, Infosys has reportedly slowed down fresher recruitment while Wipro has trimmed roles. The layoffs add a layer of uncertainty to the sector, as firms such as TCS and Infosys recently reported muted earnings growth . "Indian IT services companies exploded over the last six months and we've gradually reduced our positions and sold all of them in our portfolio," said Sat Duhra, portfolio manager at Janus Henderson Investors' Asia ex Japan equity team. Duhra had held Infosys and HCL Technologies ' shares in his portfolio but gradually sold them off in the last few quarters. "The level of growth for Indian IT stocks is really low single digit at best. And for that kind of growth, valuation and yield, it doesn't make any sense to own it in Asia-Pacific where there are opportunities to buy much cheaper companies with higher yield and growth," Duhra said. Indian versus Asian tech stocks The portfolio manager sees better opportunities in other markets in the region. Some of them have better yields, valuations and "massive upside and transformation" than their counterparts in India, he added, naming Alibaba Group Holding and Tencent Holdings as examples. India's Nifty IT Index — which comprises 10 Indian IT companies listed on the National Stock Exchange — has plunged nearly 20% so far this year, underperforming the 22.2% surge in Hong Kong's Hang Seng Tech Index and the 12.16% gain in the Nasdq-100 Technology Sector Index. The specialization of Indian tech firms is fundamentally different from that of their regional counterparts, said Abhishek Bhandari, executive director at Nomura. He also added that the weight of IT stocks in India's indices is only in the "early teens," unlike in other economies. Indian tech companies are services-oriented and typically support the IT functions of global conglomerates, he said. That means they're often affected by headwinds from a slowing economy, weaker currency and tariff uncertainties. By contrast, tech firms in South Korea, Hong Kong and Taiwan predominantly specialize in hardware and semiconductors, Bhandari said. The generative artificial intelligence boom, he added, has given them "positive tailwinds" because of their higher expenditure on hardware. Not a unique problem But Vikas Pershad, portfolio manager for Asian equities at M & G Investments, said the problems arising from automation that Indian tech firms face are not unique to the country. "Tech companies across the region are reassessing staffing needs in light of automation and AI. At the same time though, we are seeing new opportunities emerge for those firms integrating AI meaningfully into their workflows," he told CNBC Pro . Nevertheless, although the worst of the layoffs by India's tech giants appear to be behind us, the portfolio manager said, their effects have spread to other sectors. Pershad remains underweight on the sector, saying it's "difficult to make a case for an uptick in valuations given the current earnings outlook and the starting point for valuations." "An inflection point, driven by stronger revenues, improved margins or valuations, or a re-rating of the business model, does not appear to be in our base case at this time," he added. Stock picks But despite the bleak outlook, Nomura's Bhandari is "largely neutral on the overall sector," and sees pockets of opportunities. Infosys is his "top-pick" among large-cap Indian IT services players. "We expect Infosys to post 3.8% y-y USD revenue growth in FY26F (including around 40 basis from acquisitions )," he said, adding that he has a buy rating at a price target of 1,880 Indian rupees ($21.47), giving it 31.86% upside potential. Bhandari also pointed out that the company added 210 staff in its fiscal first quarter ended June, which represents a quarter-on-quarter growth rate of around 0.1% after accounting for attrition. Another plus is Infosys' plans to hire 20,000 graduates this year, he added. Nomura has a buy rating on the stock at a price target of $97, giving it 41.05% upside potential from its Tuesday close. Elsewhere, Bhandari has his eye on mid-caps in India's IT sector, as he expects them to "generally do better" than large-cap names from a growth perspective. "Their growth has now become almost 2-4 times the industry level," he added. Coforge is Bhandari's "preferred pick" in this segment, as he forecasts it can "easily deliver around 30% revenue growth this year — multiples of what large-caps are going to do." Of 34 analysts covering the stock, 23 give it a buy or overweight rating, four have a hold rating, while seven have a sell or underweight call, according to FactSet data. The analysts have an average price target of 1,895.32 Indian rupees for the stock, giving it 16.7% upside potential.
Yahoo
28-05-2025
- Business
- Yahoo
Chinese Stock Market in Limbo as Investors Lack Conviction
(Bloomberg) -- Chinese stocks have been notably calm during the recent bout of global market volatility, as investors opt to stay on the sidelines until there is clarity on tariffs and domestic stimulus. NY Wins Order Against US Funding Freeze in Congestion Fight The CSI 300 Index has moved less than 0.5% in half of the sessions over the past month. Turnover has drifted lower as traders avoided building leveraged positions. With the broader stock market lacking direction, investors are flocking to either safer fixed-income products or riskier small-cap stocks to boost returns. 'Market direction is uncertain because there's a lack of good news, though there's also no major negative catalyst' after the US-China tariff truce, said Xin-Yao Ng, investment director at Aberdeen Investments. 'I find it hard to grasp the direction on beta currently, but there are still some good stock picking opportunities.' While the market's stability may be a sign of resilience, it more likely reflects waning enthusiasm for Chinese stocks as economic headwinds build. US tariffs on Chinese goods can shoot up again once the 90-day negotiation window ends in August. Beijing has taken a piecemeal approach to stimulus this year, disappointing investors who had been anticipating stronger policy support for the economy. Here are some indicators that show cooling trading sentiment. Price swings have eased to levels last seen before the People's Bank of China reignited animal spirits with its stimulus blitz in September. The CSI 300 Index's 30-day volatility is hovering at around eight points, the lowest since July 2024. For the market to break such tranquility, traders say Beijing needs to implement deeper structural reforms and make breakthroughs on trade talks. 'I would focus on income growth and employment, without that the consumption story cannot return,' said Sat Duhra, a portfolio manager at Janus Henderson Investors, adding that there is a limit on the impact of stimulus. 'A resolution to the trade talks will drive more positive sentiment but it will be short-lived, and that doesn't address the structural challenges facing China.' Leveraged equity positions in China have stagnated since April. Outstanding margin debt balances on mainland exchanges are hovering around 1.8 trillion yuan ($250 billion), down nearly 8% from a March high. While equity benchmarks initially rallied following a temporary US-China tariff truce, subsequent losses have pared the CSI 300's gain for the month to under 2%. Part of the reason for the listless trading can be subdued activity from the so-called 'National Team' funds after record purchases last month. The squad has been largely dormant since late April, with inflows into a group of exchange-traded funds known to be favored by the team slowing to a trickle, or even turning to outflows, according to data compiled by Bloomberg. Meanwhile, aggregate flows into all equity-focused ETFs in China have been negative for five straight weeks. While enthusiasm toward stocks has cooled, fixed-income ETFs have become all the rage. The turnover across a basket of 30 such products hit a record 90 billion yuan this month, accounting for an unprecedented 8.2% of all trading value in Shanghai and Shenzhen. The last time the ratio reached 8% was in August 2024, when stocks were still in the doldrums. These risk-adverse products have consistently ranked as the most actively-traded securities in Shanghai and Shenzhen over the past two weeks, according to Bloomberg-compiled data. A lack of clear direction has pushed some investors into more riskier corners of the market. Trading in the smallcap CSI 2000 Index accounted for more than a third of the total turnover on the mainland on Tuesday. The CSI 2000 gauge has gained nearly 9% this year through Tuesday, compared to the CSI 300's 2.4% drop. The surge in interest toward volatile smallcaps suggests a lack of sustainable themes to chase in the stock market. Mark Zuckerberg Loves MAGA Now. Will MAGA Ever Love Him Back? Why Apple Still Hasn't Cracked AI Millions of Americans Are Obsessed With This Japanese Barbecue Sauce Inside the First Stargate AI Data Center How Coach Handbags Became a Gen Z Status Symbol ©2025 Bloomberg L.P. Sign in to access your portfolio
Reuters
20-02-2025
- Business
- Reuters
Indian equity markets' pain to worsen as economy, corporate profits slow
Feb 20 (Reuters) - The nearly five-month-long slide in Indian equities could continue since the slowdown in corporate earnings growth and the exodus of foreign investors will persist as the world's fifth-largest economy sputters, fund managers and analysts said. Since hitting its all-time highs in late September, the benchmark Nifty 50 (.NSEI), opens new tab index has tumbled about 13%, much steeper than a roughly 2% drop in both its Asian (.MIAPJ0000PUS), opens new tab and global emerging market (.dMIEF0000PUS), opens new tab peers. The slide was triggered by a sharp slowdown in profit growth in India's top companies. The earnings growth of the Nifty 50 companies was 5% in the October-December quarter, a third straight quarter of single-digit increases after two years of double-digit jumps, according to brokerage data. That was largely due to weakening urban demand amid high prices and modest income growth. In turn, India's economic growth is expected to slow to a four-year low of 6.4% this fiscal year. "With corporate earnings missing expectations and the rising uncertainty over U.S. tariffs, markets' returns across the board could moderate further," said Harsha Upadhyaya, chief investment officer of equity and president at Kotak Mutual Fund, which manages assets worth about $56 billion. Most analysts expect the market weakness to persist until at least the end of March. WEAK PROFITS, STRONG SALES As the growth in what was once the world's fastest-growing economy stalls, foreign investors too have pulled out in droves. They had bought $12.1 billion worth of Indian stocks from the start of 2024 until the markets peaked in late September. Since then, they have sold $25 billion worth, of which $12.31 billion has come since the start of 2025. Fund managers' allocations to India are at a two-year low, a Bank of America survey released this week showed, with a 19% net underweight position. Only Thailand fared worse among Asian countries. China's recent performance has also sucked away foreign funds, said Sat Duhra, portfolio manager on the Asia ex-Japan equity team at Janus Henderson Investors. India's slowing economic growth also means corporate profits will unlikely pick up pace. Brokerage Jefferies has lowered its full-year profit estimates for 51% of the companies it tracks, while J.P. Morgan says expectations for next fiscal year are still elevated. "We expect India to be under pressure for a number of quarters in light of weak earnings and lofty valuations which leave little room for error," said Duhra. WITHERING VALUATIONS? Despite the markets' tumble, stock valuations are still lofty by some standards. The Nifty 50's forward 12-month price-to-earnings (PE) ratio is about 20, in line with its 10-year average but still among the highest in Asia. The small-cap (.NIFSMCP100), opens new tab index is in a bear market, about 20% below its previous record, but its PE of 24 remains well above its 10-year average of 16. Same with mid-cap (.NIFMDCP100), opens new tab stocks. And with earnings being reined in, so too will prices. "The broader markets may struggle to deliver the returns investors have grown accustomed to," said Rishabh Nahar, partner and fund manager at asset manager Qode Advisors.
Yahoo
07-02-2025
- Business
- Yahoo
DeepSeek Shock Fires Up Bullish Bets on Cheap China Tech Stocks
(Bloomberg) -- China's growing clout in the artificial intelligence space has sparked a wave of optimism toward the nation's tech shares, with a gauge entering a bull market and brokers issuing upbeat calls. Citadel to Leave Namesake Chicago Tower as Employees Relocate NYC Sees Pedestrian Traffic Increase in Congestion-Pricing Zone Transportation Memos Favor Places With Higher Birth and Marriage Rates How London's Taxi Drivers Navigate the City Without GPS State Farm Seeks Emergency California Rate Hike After Fires Listen to the Here's Why podcast on Apple, Spotify or anywhere you listen. The Hang Seng Tech Index climbed 1.8% on Friday to take its gains from a January low to over 20%. Xiaomi Corp. and Alibaba Group Holding Ltd., which have the biggest weighting on the gauge, each rallied almost 30% during that period. Both are viewed as beneficiaries of AI advancement. Chinese startup DeepSeek's AI model is being hailed as a game-changer for the tech industry, highlighting the nation's innovative capabilities. It's also prompting a broader re-evaluation of the nation's beaten-down shares, just as the market was caught in the crosshairs of a tariff war following Donald Trump's return to the White House. 'This is a sector that has been ignored but like other purely domestic sectors, there are some bright spots,' said Sat Duhra, portfolio manager at Janus Henderson Investors in Singapore. 'The recent DeepSeek announcement is a timely reminder that behind the scenes, industrial policy — for example Made in China 2025 — has pushed many sectors toward world-class status.' Alibaba's shares have also been buoyed by the company's assessment that its new AI model scored better than Meta Platforms' Llama and DeepSeek's V3 in various tests. It's a rare moment of victory led by the private sector, after the Chinese market has been bogged down for years by government regulations and policy uncertainties. Wall Street brokers are upbeat, arguing that the Chinese discount will vanish as gauges top prior highs due to manufacturing strength and tech competence. DeepSeek emerged as a formidable challenger to global AI leaders after it unveiled an app developed at a fraction of the cost that rivals spent to build their products, even amid curbs on imports of the most cutting-edge chips to China. 'We think 2025 is the year the investing world realizes China is outcompeting the rest of the world,' Deutsche Bank analyst Peter Milliken wrote in a Feb. 5 report entitled 'China Eats The World.' The note went viral on the Chinese internet search engine, with the local investment community applauding the upbeat comments. 'Investors we believe will have to pivot sharply to China in the medium term, and will struggle to get access to its stocks without bidding them up,' Milliken wrote. Deutsche Bank Says Investors Will Flood Into Chinese Stocks Soon HSBC said the valuation gap between China and emerging markets may narrow, as foreign fund inflows pick up amid a growing awareness of the nation's technological prowess. 'In addition, A-share tech companies may also benefit from policy support,' Steven Sun, head of research at HSBC Qianhai Securities Ltd., wrote in a Feb. 6 note. 'The missing link is that innovation in China has yet to be translated into higher profitability, which can only be solved through demand-side stimulus.' The positive tone stands in contrast to the bearishness that has weighed on Chinese equities in recent years as investors contend with a property-sector slump and lackluster economic data. Washington's recent decision to slap a 10% tariff on China's goods had added to the headwinds. Southbound flows edged higher in January as onshore investors piled into Hong Kong's tech shares and the trend may persist due to AI tailwinds, Bloomberg Intelligence strategist Marvin Chen wrote in a note. Favorable valuations have also helped to reinforce the upbeat sentiment. The HSTECH index is trading at 17 times forward earnings estimates, compared with 27 times for the Nasdaq 100 Index, according to data compiled by Bloomberg. To be sure, Morgan Stanley strategists reiterated their cautious stance on China's semiconductors and hardware stocks in a note dated Feb. 1, citing broader tariff and other risks. These include the possibility that the US may expand curbs on advanced chip sales to Beijing. Despite the latest rally, the HSTECH gauge is still more than 50% below a peak reached in early 2021. In addition, Morgan Stanley said foreign funds probably withdrew $2.4 billion from Chinese stocks in January although the pace of decline was likely slower than the previous month's. --With assistance from Margo Towie and Jiyeun Lee. Orange Juice Makers Are Desperate for a Comeback Believing in Aliens Derailed This Internet Pioneer's Career. Now He's Facing Prison Inside Elon Musk's Attack on the US Government Amazon and SpaceX Want In on India's Satellite Internet Market Business Schools Confront Trump Immigration Policies ©2025 Bloomberg L.P. Sign in to access your portfolio
