On Siemens
Though the overall capex cycle and the kind of traction that one could expect is missing, Siemens has done very smartly and is capitalising on the short cycle orders in uncertain times. Thanks to digitisation and automation opportunities across the spectrum, Siemens will be able to pick up some projects. The businesses remain impacted for many other areas and from a two to three year perspective, these kinds of companies can give an even bigger upside because once they see the initial indications, people would really want to participate in companies like Siemens and ABB and other capital goods companies. So, things are not too positive from a short-term perspective, but from a two-year perspective, these are good opportunities.
On
It is the same boring story as far as ITC is concerned. The numbers are pretty much okay but our larger concern is that the dependence on the cigarette business continues to be very high at about 82% — even going forward. One may say that ITC is a cheap stock quoting at about 17.5 times valuations, but the profitability growth in the last four years is barely 7.4%. What kind of profit growth are we really looking at for the next two years? It is going to be hardly 6% to 7%. You cannot give a very high PE multiple to a company which is growing at 6% to 7% with so much dependence on the cigarette business.
What we like about ITC is the fact that it is a good 5% to 6% kind of a dividend yield play. For those investors who are happy getting into a stock for dividend and where the downside risk is limited, ITC could be a good fit but for growth oriented investors looking to outperform the market, ITC does not fit the bill.
On auto stocks
We feel that though because of lockdown there has been some impact on the volume, the numbers that most of the segments have delivered — particularly the PV, CV and tractors — were above expectations and the two-wheeler numbers were pretty much in line with expectations, particularly TVS and Bajaj which because of the larger export pie have done reasonably well. Passenger vehicle numbers particularly were above our estimates and going into the next one quarter or so, one should see a decent traction building up as we go into the unlock trade. Overall, we continue to be positive on Maruti. In case of Mahindra & Mahindra, the tractor volume outlook has not been that great but at current valuations, we are quite positive on the company and we expect a decent traction from a six to 12 months’ perspective.
On metals
On the domestic side, steel companies are undertaking price hikes of almost about Rs 3,000 for HRC and about Rs 5,000 for CRC because we are still at a 10-15% discount to the global prices. Our take iwe have to be a little careful because China is undertaking steps to cool down the metal prices. Depending upon what additional steps they may take, it could impact the sentiment and here even in terms of margins, the steel companies are extremely well placed.
So even if there is no further price hike even at current price or may be a little lower, the margin assumptions that most of the analysts are walking with is going to be a significant positive surprise. We are selectively positive on names like JSW Steel and SAIL and more so in terms of Hindalco where the relative volatility and risk of China steps is less but being a high beta sector, one will have to be a little cautious.
On midcap IT stocks
IT midcaps have come out with very strong price performance in the last three months while the largecaps have not been that strong. We have seen very strong traction in
, Cyient, L&T Technology and even some of the product companies like Route Mobiles and many others which have their own niche in terms of the product offering.
The market is extremely keen to get into some midcap emerging stories where there could be some additional upside because of the way the digital theme is playing out. Within that, we continue to like some of the names like Cyient and Persistent. Apart from that, L&T Technology also is very well placed at this point of time.
On pharma stocks
Trigger for pharma companies would be both Covid related, particularly vaccine related as well as other acute therapies because a number of pharma companies with non-Covid related therapies are also gaining traction. As the unlock happens in a big way over the next one or two quarters, that traction will actually gain.
By and large most of the pharma companies have delivered reasonably good sets of numbers and given the issues around Covid and healthcare, more and more people would focus on pharma as a sector with good growth potential. Among pharma largecaps, we like Sun and Divi’s. These are all core portfolio holdings which one can look at. Among midcaps, we like Gland Pharma where there is a bigger injectable vaccine opportunity; Laurus Labs which is an API player and even something like a Solara Active Pharma which is an API and a very niche play. We continue to be extremely positive on pharma overall.
