Only buyback may help ITC stock now: Sabharwal | Economic Times

In case of IT stocks, there is a possibility that the top line growth could continue but margins could disappoint over the next two-three quarters, says Sandip Sabharwal, analyst, asksandipsabharwal.com You have seen the ITC stock trade a bit in the green, but are the markets being unfair?Mr Puri’s statement there created a flicker of life in ITC but it died out very fast. One of the things playing out right now is the overhang of the government stock because the government apparently is looking to sell and no one wants to take the stock. But it is imminent that once it happens, the stock will perform. If you look at the overall market valuations and look at the valuations of ITC, a demerger might not work now because the hotel business might not be able to support itself on its own. But they have huge cash reserves and they have been paying a large amount of dividends which is not helping the stock. So the other way for them is to do a buyback and I think that is the best way. My guess is if the management is seriously interested, a buyback is the only way to go, they have enough cash reserves and they can do it easily. Besides that, ITC was Rs 200 when a lot of the other stocks like Titan or Jubilant or HUL, were at half their current prices. But ITC is still at 200. So at some point of time, value will catch up. People who have been stuck for a long time and are getting frustrated, should be able to get some gains. In pharma, every player has done differently. Whether it is Dr Reddy’s or a Sun Pharma or Lupin, yesterday’s discounts have come into this pack as well?Absolutely and that is what I have pointed out many times. Pharma is not like IT. In the case of IT, the rising tide is lifting all the boats and to that extent the midcap companies having a higher operating leverage are benefitting more and the largecaps are also doing well. In the case of pharma every company is very different. We have seen a strong revival and good prospects from Sun Pharma; on the other hand, Lupin has been disappointing continuously; Dr Reddy’s has been on and off and Cipla has been doing reasonably well. On the midcap side, some companies have been doing well but then again we do not see those cash flows. Pharma is a very divergent market. It has to be stock specific. One cannot take a view for the sector as a whole. The reaction to BPCL share price shows prima facie market is disappointed with the numbers?Again that is temporary. BPCL is more driven by the disinvestment news and the government has been trying to disinvest. There do not seem to be too many suitors and to that extent, that is the biggest driver for BPCL. I would think that investors should largely avoid trading or investing based on the quarterly numbers. It will be more about whether the disinvestment happens or not. If it does not happen, then the entire oil marketing growth could see a de-rating again. The tilt of the market and this favouritism towards IT continues irrespective of the market sitting at all time highs.That is a key feature of the bull market where the stocks are trading at highs and where people have made money. Typically no one is inclined to sell them unless and until some negative development happens. No negative development has happened for the IT sector per se over the last few quarters and that drives the stock prices higher. But overall on the midcap IT side, I would be a bit cautious because of the impact on margins from significant wage inflation which is playing out due to rising attrition as the fight for talent does not seem to be well factored in by most of the analysts. There is a possibility that the top line growth could continue but margins could disappoint over the next two-three quarters.