We have been talking for a while about how some speciality chemical names have peaked out. Would you agree to that? We are still seeing some interesting traction on a couple of those names.
Such tops are made because the retail investor interest is extreme in these stocks at this state. If you follow social media, everyone everyone seems to be recommending a couple of speciality chemical names. People believe that a majority of their portfolios should have speciality chemical names. What people need to realise and what the next few quarters results will also show is that the profitability of such companies is cyclical. There are times when the raw material price increase is less than the spike in the final product price, which is what we saw in the last few quarters.
The next few quarters might be very different. These are not FMCG companies which have such pricing power and can hold on to their margins under any circumstances. They are not Pidilite or Asian Paints where you can increase prices. People should be very wary of these stocks at these valuations.
PSU banks have not been a preferred area for you but given the growing interest in the market, would you at least track what is happening in this pocket?
Fundamentally, there is no case. In a bull market frenzy, these stocks move up. That is no reason for long-term investors to buy these stocks because these banks are neither the preferred banks for people to keep their deposits nor are they preferred by people who want to take loans.
In a low credit growth environment, these banks will only lose market share. The slowdown due to the second wave will lead to some spike in NPAs. So I think people should wait it out. Look at the next one or two quarter results and see if there is some real change happening in these banks or not.
Would you continue to own ? Do you think it a lambi race ka ghoda?
There is a paradigm change in what the company can do and achieve over the next 3-4 years. It is not only on ethanol, but on the other business segments also which will add to their profits. The key is the high operating leverage that the company has. Its cash position is strong. So I think the participation from investors has just started in this stock. Now it has been a straight line run-up. If it consolidates for some time, some old investors who want to exit can exit. Some new investors will come in and over the next two-three years, the stock will be much higher from the current levels.
