What is your outlook on the midcap IT space, given the order pipeline, revenue growth and currency tailwinds?
It is not about largecap vs midcap IT. You have to see the sector from the momentum in deal wins and how margins are going to be like. Among larger names, we like HCL and Infosys. HCL has corrected almost 15 per cent from its recent high. It had a soft quarter. The deal win momentum continues to be good. Their core specialisation is app modernisation, which would hold them steady. We continue to like MindTree, which has one of the best margins in the midcap IT space. We also like Tata Elxsi. Their dependency on automobiles has come down significantly and we are seeing lot of deal wins.
Is it right to bet on smallcaps now as most stocks in the smallcap index are already making fresh highs?
Smallcaps are still 5-6 per cent away from the high reached in 2017-18. But you have to be very careful. There is a lot of exuberance in pockets. People are thinking that if X has gone up, Y should also go up because it is relatively cheaper. Those are the trades you have to avoid. There are some good opportunities in pharma space. Neuland Labs is still available three times its sales. Their GDS (generic drug substances) is seeing lot of traction, CMS (custom manufacturing solutions) book has lot of visibility and eventually peptides will also contribute more (to their sales). Their unit-III production, which will support intermediates and APIs, has commenced.
We also like Kopran. A midcap name we like is Deepak Nitrite. It gave very strong set of numbers and was almost at 130 per cent utilisation. You have to go a bit bottom-up and not really differentiate between small, mid and large. You have to go where there is earnings support and where you can see significant earnings growth coming over the next few quarters.
Outside of the speciality chemicals universe, where else are you sensing opportunity now?
We look more at the size of the opportunity than the size of the company. Other than pharma and speciality chemicals, I like the broking business where we are seeing a record addition of demat accounts. There is a clear equity culture being built. Despite the run up, CDSL is a very structural story. Their market share in the individual segment now exceeds that of NSDL. They are also making good revenues from eKYC and other services.
There is opportunity in building material housing plays as well. You will see a big revival in housing as and when things normalise. We have already seen very strong commentaries from HDFC and others.
Can you bet on the entire oil and gas space confidently for the long run?
Despite the near term underperformance, Reliance remains the top bet as it is not really an O2C play. The incremental contribution from O2C will come down. But we saw good performance from the oil-to-chemicals vertical. The big trigger would be the demergers, spin-offs and stake sale as and when they are going to monetise. They have great plans even on the renewable energy side and Reliance will be more of an aggregator and platform play, rather than an oil-to-chemicals play.
We also like city gas distributors, which is more of a fundamental and structural play. We like Gujarat Gas despite the run up.
