IT stocks under watch — analysts express cautious stance as uncertainty looms over discretionary spending

During a period of economic slowdown or, worse, a recession in the United States, companies will exercise greater caution when deciding on their spending priorities. It is crucial to carefully assess the nature of the expenses they engage in. As the situation unfolds, it remains to be seen how events will develop.

In an interview with CNBC-TV18, Sanjeev Prasad, the Managing Director and Co-Head at Kotak Institutional Equities shared his insights on the current market trends and his outlook on various sectors. Prasad reiterated his underweight position in the information technology (IT) sector, expressing caution despite its prominence in the market.

He said, “Companies would be lot more careful about what kind of spending they want to get into when the US is slowing down, or God forbid even going into a recession. So, let’s see how things pan out. I would be a bit cautious on IT now.”

Prasad expressed uncertainty about the prospects of a significant pickup in discretionary spending. His statement reflects the prevailing apprehension among investors and analysts regarding consumer behaviour in the face of economic fluctuations and changing priorities.

While Prasad voiced a cautious stance on discretionary spending, he acknowledged the optimism surrounding auto stocks, which have witnessed a notable rally driven by expectations of higher profitability. However, Prasad pointed out that the volumes for auto companies are not exhibiting the same level of strength as the market rally might suggest.

“If there is a combination of somewhat muted demand, more competition coming in, and companies sitting on high profitability profit pools, I think they are all ready for disruption, they will all decline going forward and multiples will come off sharply from where they are. So, autos are a strict no-no for me now,” said Prasad.

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