What is going on with the metals pack right now? Steel continues to be in a super cycle but I guess some profit taking would be par for the course.
Yes, in terms of the way the price movement has happened as far as stocks are concerned, definitely this calls for some kind of profit booking in many players. The metals index has gone up almost 140-145% and the profit booking which we are seeing right now could be a precursor to overall rationalisation as far as returns from cyclicals are expected. But yes, demand is staying up and therefore prices are not likely to come down as far as metal prices are concerned. But in terms of investor sentiment, there will be some volatility depending on how the steel prices actually move.
It is helping the markets stay up. is turning out to be the dark horse. Is it finally catching up with valuations of the tier I IT companies?
I am not commenting on specific stocks but the entire midcap IT space has seen value creation and that has pushed up a lot of valuations across the IT midcap sector as such. This is probably the right time to be slightly more cautious on midcap IT in terms of the way the valuations have gone up. We are advising our clients to focus more on large cap IT rather than look at midcap IT as fresh positions at current levels.
ET Now: Coming to pharmaceuticals, how would you view the entire pack? This is a mixed bag as far as earnings go. Much upside is still left as far as APIs are concerned. On the other hand, suddenly hospital stocks are also doing very well.
Nimish Shah: This is momentary in terms of the way funds are flowing in both in terms of institutional and domestic flows especially to certain companies in the pharma sector. The pharma sector has the growth potential of almost 12% to 15% for the next one year and should definitely be looked at. But in terms of valuation, pharma and the healthcare business, compared to other sectors, has been a laggard. That is where some catch up is happening but we believe that staying in largecap pharma names is the way forward.
We heard again the entire theme of cleaner energy, greener energy from the prime minister himself on August 15. Are you changing your portfolio, making it more green?
ESG is one of the focus areas where we are advising clients and as asset allocators, it becomes very important for us to understand the changes which are happening both from the point of view of the environment and also from the point of view of socially responsible moves being taken by corporates.
We lay a lot of emphasis on that and in fact we are one of the first signatories of the UNPRI where we are advising clients from an ESG perspective. The auto sector is going to have a major impact and in terms of the way green technology is moving, we find a lot of scope there. That is where auto ancillaries play a very important role. While the OEM manufacturers will have their own share of shifting towards greener vehicles, there the government focus will also help.
But auto ancillaries are supplying to India as well as doing a lot of exports, especially in developed countries where the technology is developing at a much faster pace and has found much more acceptance. Auto ancillary stocks which are supplying to these countries, especially Europe and the US, will see a lot more demand coming in and a lot more push towards the green sectors as such.
