Helios Capital's Strategic Shift: Increasing Investments in IT and Platform Companies

Helios has been adding IT stocks & platform cos since July-end. Dinshaw Irani explains why

Dinshaw Irani, CEO, Helios MF, says At July-end, they turned constructive on IT after TCS' results. One has to read between the lines for TCS because they never give out any numbers. They added to their employee strength and their call was very positively structured. We took that hint and started adding to that. In the case of IT, the stocks are available at about half the PEs of FMCG and the growth rates are better than the FMCG bunch. For Helios at least, this is a place where we can very easily park our money. Everybody is smiling in this market. But how long will the smiles continue? Dinshaw Irani: That is the right question. The fact is India got re-rated big time also because our average PEs were 17, 18 and now we are at 23, 24 forward earnings. The re-rating happened on the back of the balance sheets becoming stronger and the growth rates becoming much more exciting. The balance sheet remains stronger, there is no issue with that. But the earnings growth has tapered off. The last two quarters' reported earnings do not support the valuations we are at. So, we are slightly concerned on that basis. Half of this quarter is over literally, two-thirds of the quarter really, and it does not look that exciting either. So, there may be some stretches in certain pockets where there has been a lot of froth building up and we are concerned. The correction in defence and railways and the PSUs and the shipyards has already started. How come nobody is talking about it? Dinshaw Irani: We have been talking about this for a while. In the runup to the Budget, we sold off quite a bit of PSUs. We sold off, in fact in the oil and gas space and chopped off some weightage in defence. We had one railway stock, which is more of a tourism stock and we moved that out. We got our shopping cart down to a manageable level as such. But the Budget was not that exciting for the PSU space as such. There was a cut in spending and it was obvious that this kind of euphoria in PSU space wouldn't last long. The spoiler was the capital gains and we saw that the FIIs have been constantly dumping after that. They have been buying in bits and pieces, but that is only when there is an offer available at a massive discount and that is an insider offer coming, which anyway is not good news for the markets. So, only then FIIs buy; otherwise, they have been out of the market and we are negative. The only thing supporting the market today is the domestic flows which continue to be fairly healthy. Wondering whether IT is the contract call that one should have jumped in on in April? Now, the index is at an all-time peak. But whether there is further headroom to go from here or not is because the commentary from LTIMindtree and HCL Technologies on their investor day, pointed to a demand recovery. Dinshaw Irani: So, let me let you in on a secret. At July-end, we turned constructive on IT after TCS' results. TCS was an eye-opener and for us, it is a bellwether because one has to read between the lines for TCS because they never give out any numbers. The fact that they added to their employee strength and their call was also pretty disdainful and very positively structured. So, we took away that hint and we started adding to that. When we are not too comfortable in the market, normally money goes towards safety. In the case of IT, the stocks are available at about half the PEs of FMCG and the growth rates are better than the FMCG bunch. For us at least, this is a place where we can very easily park our money and see some growth coming through, especially in times when the markets are looking a bit jittery to us. So, it is better to be in a space that is going to give a healthy return of 12-13% in terms of earnings and the PEs are at sensible levels and are probably at par with what they were earlier. They have not re-rated. Also, that is not the only space. We also like the non-lending finance, which is another space that needs to be looked at. But the IT logic was that the sector is not growing and valuations are above their five-year average. Valuations never came below their five-year average. And what growth are we talking about? 8% becoming 11% or 9% becoming 12%? The stocks are up 30-40%! Dinshaw Irani: So, 9% becoming 12% itself is a 33% growth, in terms of growth rate. I am splitting the hair. There are a lot of other businesses where growth is 15-20%. Dinshaw Irani: I am coming to that. What we were concerned about was that the new technologies coming in would create a problem for these guys and the more you look at it, the more it is obvious that these guys are going to add AI and generative AI and all that to their businesses. So that is one area that you need to look at. You are right in the sense that 12% may become 14-15% because 12% right now is what the estimate is. HCL Tech yesterday finally gave some kind of indication that the medium-term looks pretty healthy. They did not call out the immediate short-term, but they called out the medium-term looking fairly good. So, one can probably see that the growth rates may come back to their mid to high teens in this case and that is why this is the time to be in a sector where you are sure of growth. The valuation is also in sync with what we have seen. You talked about the last five-year averages. The five-year averages had a Covid period where the valuation just went through the roof. But if you look at the pre-COVID period, they were at 19-20% and they had 23-24 times forward earnings as such, which is fairly okay for us. Other than IT, where else would you have added positions in the last three months? Dinshaw Irani: So, I would not give out the names but obviously, we used to hold one IT stock, which was in the automation space. We added that too. Plus, we added to the heavyweights in IT. And we picked up a few more names beyond that also. So, probably five odd names. And, the platform companies, which we believe are IT companies as such, there again, we have increased our exposure to that extent.

Helios has been adding IT stocks & platform cos since July-end. Dinshaw Irani explains why

Dinshaw Irani, CEO, Helios MF, says At July-end, they turned constructive on IT after TCS' results. One has to read between the lines for TCS because they never give out any numbers. They added to their employee strength and their call was very positively structured. We took that hint and started adding to that. In the case of IT, the stocks are available at about half the PEs of FMCG and the growth rates are better than the FMCG bunch. For Helios at least, this is a place where we can very easily park our money. Everybody is smiling in this market. But how long will the smiles continue? Dinshaw Irani: That is the right question. The fact is India got re-rated big time also because our average PEs were 17, 18 and now we are at 23, 24 forward earnings. The re-rating happened on the back of the balance sheets becoming stronger and the growth rates becoming much more exciting. The balance sheet remains stronger, there is no issue with that. But the earnings growth has tapered off. The last two quarters' reported earnings do not support the valuations we are at. So, we are slightly concerned on that basis. Half of this quarter is over literally, two-thirds of the quarter really, and it does not look that exciting either. So, there may be some stretches in certain pockets where there has been a lot of froth building up and we are concerned. The correction in defence and railways and the PSUs and the shipyards has already started. How come nobody is talking about it? Dinshaw Irani: We have been talking about this for a while. In the runup to the Budget, we sold off quite a bit of PSUs. We sold off, in fact in the oil and gas space and chopped off some weightage in defence. We had one railway stock, which is more of a tourism stock and we moved that out. We got our shopping cart down to a manageable level as such. But the Budget was not that exciting for the PSU space as such. There was a cut in spending and it was obvious that this kind of euphoria in PSU space wouldn't last long. The spoiler was the capital gains and we saw that the FIIs have been constantly dumping after that. They have been buying in bits and pieces, but that is only when there is an offer available at a massive discount and that is an insider offer coming, which anyway is not good news for the markets. So, only then FIIs buy; otherwise, they have been out of the market and we are negative. The only thing supporting the market today is the domestic flows which continue to be fairly healthy. Wondering whether IT is the contract call that one should have jumped in on in April? Now, the index is at an all-time peak. But whether there is further headroom to go from here or not is because the commentary from LTIMindtree and HCL Technologies on their investor day, pointed to a demand recovery. Dinshaw Irani: So, let me let you in on a secret. At July-end, we turned constructive on IT after TCS' results. TCS was an eye-opener and for us, it is a bellwether because one has to read between the lines for TCS because they never give out any numbers. The fact that they added to their employee strength and their call was also pretty disdainful and very positively structured. So, we took away that hint and we started adding to that. When we are not too comfortable in the market, normally money goes towards safety. In the case of IT, the stocks are available at about half the PEs of FMCG and the growth rates are better than the FMCG bunch. For us at least, this is a place where we can very easily park our money and see some growth coming through, especially in times when the markets are looking a bit jittery to us. So, it is better to be in a space that is going to give a healthy return of 12-13% in terms of earnings and the PEs are at sensible levels and are probably at par with what they were earlier. They have not re-rated. Also, that is not the only space. We also like the non-lending finance, which is another space that needs to be looked at. But the IT logic was that the sector is not growing and valuations are above their five-year average. Valuations never came below their five-year average. And what growth are we talking about? 8% becoming 11% or 9% becoming 12%? The stocks are up 30-40%! Dinshaw Irani: So, 9% becoming 12% itself is a 33% growth, in terms of growth rate. I am splitting the hair. There are a lot of other businesses where growth is 15-20%. Dinshaw Irani: I am coming to that. What we were concerned about was that the new technologies coming in would create a problem for these guys and the more you look at it, the more it is obvious that these guys are going to add AI and generative AI and all that to their businesses. So that is one area that you need to look at. You are right in the sense that 12% may become 14-15% because 12% right now is what the estimate is. HCL Tech yesterday finally gave some kind of indication that the medium-term looks pretty healthy. They did not call out the immediate short-term, but they called out the medium-term looking fairly good. So, one can probably see that the growth rates may come back to their mid to high teens in this case and that is why this is the time to be in a sector where you are sure of growth. The valuation is also in sync with what we have seen. You talked about the last five-year averages. The five-year averages had a Covid period where the valuation just went through the roof. But if you look at the pre-COVID period, they were at 19-20% and they had 23-24 times forward earnings as such, which is fairly okay for us. Other than IT, where else would you have added positions in the last three months? Dinshaw Irani: So, I would not give out the names but obviously, we used to hold one IT stock, which was in the automation space. We added that too. Plus, we added to the heavyweights in IT. And we picked up a few more names beyond that also. So, probably five odd names. And, the platform companies, which we believe are IT companies as such, there again, we have increased our exposure to that extent.