On FMCG stocks
One of the good things of the lockdown of 2020 was that while the urban and semi-urban areas were impacted, the rural areas did not really see any lockdown. One can see that in the numbers, in the crop production. It can also be seen in demand in the non-farm sector stocks like cement. All those sectors benefited because of rural demand. By the same token, even the consumption basket has benefited and that is reflected in the kind of 60-70 multiples of Nestles of the world. I would not be an incremental buyer in those stocks at the current levels given that they have already run up.
On auto ancillaries
The auto sales numbers are very strong despite the fact that some of them could have missed out on market expectations. This shows that the auto industry is in a good place. Consumption is coming back. In some cases like commercial vehicles, the movements have been far stronger. Rural India is strong while urban India is coming back after being locked up. Many of the auto ancillary stocks fall into the broader market,including JK Tyres. It still trades in single digit multiples. The Engineers India stock trades at 10 times and now with oil back at $60, the company is trading at less than 10 times. It has no debt on its book, good ROE and the stock can very easily go up another 30-40% from here.
So there are a lot of good stocks and one can be slightly more stock specific here as the broader market gives you the opportunity to pick those stocks across various sectors.
On cement basket
The recent PMI numbers show that manufacturing, construction numbers are moving up. Construction moving up means cement demand is going to pick up too. That was also reflected in the cement numbers which showed decline was less than expected and that showed that recovery is underway. Now against that backdrop, there are elections in four or five big states and this is the time when construction will pick up. Take a midcap company like JK Lakshmi Cement. It is trading at about 5.7 times EV/EBITDA, which is a very reasonable multiple given its growth potential. That stock can very easily grow significantly higher from these levels. There are a number of examples like Birla Cement. Even UltraTech Cement looks very attractive. Cement as a space offers a fairly good number of stocks to choose from.
