This could be a good accumulation zone for HUL. How do you see the results? Clearly the Street is not too happy with the erosion in gross margins on account of commodity pressure?
The writing was on the wall very clearly. We all know that the prices have moved up and there is definitely a cost pressure and that is getting reflected across the board. Look at the cement companies, look at the FMCG companies, look at multiple other sectors where this will be visible and that is a reality. But having said that, the challenge is not that, the challenge is growth. HUL has shown reasonably good growth and this is as per the Street expectations. Also, remember the GSK portfolio which they acquired. That has been helping them in a big way in achieving the numbers they are achieving.
There is still a lot of opportunity left in the GSK portfolio which will help them going forward. So I am not too worried about this quarter’s bit of a disappointment on the margin front due to cost pressure. If one is building a long-term portfolio, HUL can be an excellent buy even at current levels. Remember you have to look at a slightly longer term time horizon when you buy shares at these kinds of PE multiples. But having said that, there is no problem in top tier FMCG companies like HUL, you can buy even now.
Where else are you going to take profits from? It has to be the likes of a Tata Power and IRCTC, a Tata Motors DVR or IndiaMart?
You are absolutely right. In fact, in the last 10 trading sessions, the Nifty has moved up by 1,000 points. So a bit of a pause, a bit of profit booking, a bit of consolidation is absolutely warranted. It is good for the health of the market, some amount of correction at current levels is good.
The way the global markets and the way the liquidity situation is, I do not think this cut is going to be very deep. At some stage, buying will start coming but a little bit of a correction particularly in names like IRCTC, IEX is okay. None of these are bad stocks. There is definitely a lot of opportunity in the unlock trade. In the case of IEX, power is getting more and more traded through exchanges, the government encouraging that, all that is good news but the valuations and the kind of price increase which it has seen over the last maybe few weeks or a month I is really a cause for concern. A bit of a correction, a bit of consolidation is good for the health of the market.
IT was in focus today. Traditionally there has been a move towards IT, FMCG for relative safety when one sees a broad-based selloff. Is that something that an investor can look at now? Are there names that one can pick up right now?
Indian IT is going through a multiyear rerating. We have seen probably 30-40% of the rerating process getting done; there is still 60-70% of the upward movement left that is what we believe. This may take about three, four years more but that is the reality. They are having the time of their life. This will continue and so there is absolutely no harm whether you call it hiding or taking position or building a portfolio for long term investment.
Getting into IT is absolutely no brainer, one should do that. Specifically, I like HCL Tech and this is in spite of the little subdued results which they announced in the second quarter. It gives an opportunity because in a peer comparison, it is definitely much cheaper than some of the midcap IT stars because they are quoting at 40-50 multiples whereas HCL Tech is probably closer to less than 30 multiples. So HCL Tech can definitely be picked up. It is a differentiated company with focus on products, platforms, digital, R&D, engineering so yes, this is one company one can look at.
But there is absolutely no harm in buying
or TCS or even Wipro at the current level if you have a time horizon of one year plus. Be a little careful on the midcap IT because some of these are quoting at a valuation which is very difficult to explain. Yes, they are good companies, they are doing well but a multiple of between 40 and 50 is a bit too much for these companies.
