How you are looking at the overall auto space given the fact that retail sales of not just commercial vehicles but two-wheelers and three-wheelers are also down? Do you think that we have hit a speed bump only for the time being or that the road ahead for autos does continue to look a little bit dicey?
Auto sales are going to hit a speed bump in the short term. The whole length and breadth of the second wave has been quite devastating and has affected Tier-II and Tier-III cities as well. The whole rural hinterland was very robust last year but now unemployment is going up. Hero has shut its plants for a few more days. CV sales are getting impacted with lockdowns happening sporadically across states. At least for the next month or two, auto sales would hit a speed bump. I do not think we are going to see an immediate bounce coming back soon, at least not till we have clarity in terms of when we peak out of this wave. The biggest damage has been to consumer sentiment unlike last year. So it will probably take some time to come back.
Do you think there can be fresh names within pharma that one can pick up now?
We need to play pharma on a bottom-up basis. Domestic facing names are doing well at the moment. Pharma has got collective tailwinds going for it. The regulatory framework is improving, the government is coming out with PLI schemes and the RBI is providing more than adequate capital for the segment. On the other hand, the China plus one factor is playing out and the entire domestic market is also doing well.
In the short term, pharma companies who have therapeutic drugs or medicines aimed at COVID will continue to do well. The sales of Glenmark’s FabiFlu saw an unprecedented jump last month. We prefer some midcap pharma names who have a strong manufacturing basis, API orientation and injectable capacity. These companies will do well in the next few years.
How are you looking at the pecking order when it comes to large cap cement counters?
We like UltraTech. It is right there at the top primarily because if you were to check in the market circles you will find that this company is the price setter. All other companies are price followers. The deleveraging in UltraTech has been immense. Its net debt has come down dramatically when you see the current result. We also like Dalmia Bharat, which also should do exceedingly well. And then we would probably put the Ambujas and the ACCs because their capacity expansion has not been as aggressive as we have seen with the top two players.
On banking stocks
We continue to like large banks that are more diversified and have the size and wherewithal to be able to manage these short-term challenges. In the private sector space, we continue to like the HDFCs and ICICIs and now Axis is coming back well. So we would rather like to play it through some of these larger names where we growth continues to be robust, the books continue to remain strong and they have the capital to capitalise on growth when it comes back.
Do you track anything within the sugar space? How you have looked at the recent announcements and within this niche sector is there anything that catches your eye?
Most of the companies that we look to invest in are those with long visibility of revenues and sustainable return on capital. Sugar has hitherto been a highly cyclical and government regulated business. Having said that, it looks like sugar is in a virtuous up cycle at the moment. There is a global shortage, ethanol demand is going up and India is releasing its stocks and enabling sugar companies to capitalise on both these opportunities. If we were to play this, we would probably play this with one of the most well run of these sugar companies and who also have sizable ethanol capacity – Balrampur Chini Mills.
Where is the opportunity within the entire insurance gamut to invest afresh?
The whole sector has a long runway for growth as market penetration is very low. Within that space, we like SBI Life Insurance. It compares extremely well to HDFC Life from a price-value equation perspective, growth numbers, new premium growth but the valuation is almost half. So we think it is the best of the pack.
