Avoid IT for now, wait for green shoots before re-entering: Ambareesh Baliga

"As far as earnings is concerned, disappointing no doubt, but then the best part is the analyst expectation is decently low. So, that is what is supporting the markets to a large extent despite the earnings which we have seen in the recent past," says Ambareesh Baliga, Independent Market Analyst.

Help us with your take on the markets because the earning season has just started. Not much expectation on that front and India is still awaiting the tariff announcement, what really happens between India and US and which number both the nations actually decide. But as of now the markets are trading quite in a range, they seem to be consolidating. What sort of a sentiment are you picking up for the markets right now?
Ambareesh Baliga: In fact, from a market perspective I do not see too much of a downside for the market. Possibly 24,800 should be the low at least in the near future and I see a broad band of between 24,800 to 26,000, 26,200 and that should be achieved possibly when the tariff agreement happens between US and India.

As far as earnings is concerned, disappointing no doubt, but then the best part is the analyst expectation is decently low. So, that is what is supporting the markets to a large extent despite the earnings which we have seen in the recent past.

Lots of triggers when it comes to what could be the next focal point in the market, you have earnings, you have the tariff deadline. But give us a sense on the kind of earnings that you are expecting from the non-IT group of stocks. IT we understand the entire street sentiment right now is rather muted after TCS and HCL Tech’s numbers, but other than that where do you see some surprises this time in terms of earnings? Where can we expect to see some good numbers?
Ambareesh Baliga: We could see surprises in the BFSI space, especially from the banking space. We could see some surprises from the FMCG and the consumer durable pack because clearly the tax cuts which we had in the budget, that would have played out to a certain extent in the first quarter, so that should get reflected in both these sectors. So, these are a couple of the sectors where I see some surprises and possibly in the speciality chemical space where again we could see an uptick.

But it like you said, overall could be a disappointment, but then that has been already factored in to a decent extent. So, because of those earnings, I do not see a major cut in it. Yes, we could see some correction, I mean as and when the earnings are announced, but there may not be a major cut.

So, would you say that it is time to perhaps bottom fish from it or is it an out and out avoid?
Ambareesh Baliga: It could be a wait and watch for the next one or two quarters because I do not see it really bouncing back vigorously from these levels. Whereas there is like decent amount of picks which you can have from the other sectors where you could see a decent movement. So, does not make sense buying into it right away. Let us start seeing some green shoots. So, maybe I mean you may have to buy about 5% or 8% higher, but it is better to buy when you start seeing green shoots than buy at this point of time.

What is your take on the entire pharma space? Today, we have positive news coming in from Sun Pharma wherein their alopecia drug has been launched in the US called Leqselvi, so that is a positive news flow coming in. But in the overall pharma space and the sub-pockets that we have there, which subsector, which theme do you believe from pharma could do well?
Ambareesh Baliga: See, in pharma from time to time you have President Trump talking of extra tariffs, the recent one was the 200% tariff and that is what spoils the mood in this space, but then my feel is that he may talk about tariffs, but the final implementation could be very difficult because end of the day you cannot keep increasing the cost of healthcare for the US citizens and there can be a huge backlash if that happens. So, he may talk, but he may not be able to implement that.

So, the pockets which I would look at are the ones which have a decently large exposure in US and have been under pressure because of all these talks. So, stocks like Sun Pharma, Dr Reddy’s these are the ones I should be looking at.

But you did talk about the speciality chemical plays that are looking interesting to you but it is a big basket of stocks that are there and companies also have their niche. Yes, of course, we are seeing the stocks moving higher within the chemical space, but help us understand that what factors could be at play for the chemical and especially the speciality chemical side of business and along with that within that any particular pocket that is looking interesting to you?
Ambareesh Baliga: The China plus one story starts playing out, but at that point of time although we had that niche in specific speciality chemicals, but then we did not really have that scale, but then in the last about four years we have seen a lot of these companies have built up that scale and we are today among possibly the top three-four manufacturers in specific niche areas and that is what should play out over the next couple of years. So, stocks like Deepak Nitrite, Vinati Organics, SRF are the ones that should be looked at.