Where do you see a sector like pharma is headed because this is one sector which felt like a bull market in 2020 but resembles a bear market in 2021, No sector has seen this kind of an experience of a bear and a bull market coexisting in a matter of 6-8 months?
Yes, I agree it is a little bit perplexing. In the fall of 2020, two sectors bounced and did extremely well; one was tech, IT services and the other one was pharma. While tech continued the leadership, pharma gave it up.
Again, pharma is a very complicated sector, there are regulatory issues, product issues and many moving parts, US price competition. A lot of those have also played their part. Longer term, there is money to be made but one cannot take a generic call on the sector, one has to be very stock specific. So, I think the sector will come back. I am not saying that the sector would not come back but I think that also because what happens is that the weight of the sector is so significantly small in the index that generally people who index, do not really bother if one or two pharma companies outperform because it does not really impact their performance.
It is a sector which will eventually make money for investors but we will have to be stock specific and cannot take a sector call. Overall, there is still opportunity in companies which are largely in APIs and there the China plus one opportunity is very solid and is not going away. It is there that money can be made. But if you are betting on generics, then it is a fairly complicated sector because what happened was initially there was a lot of excitement about the opportunity for vaccines. Then slowly that opportunity and the excitement waned away.
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There was a lot of one-time earnings which accrued to companies in 2020 in a couple of quarters because there were certain kinds of medicines which were sold more and there was also a lot of prestocking. We need probably a couple more quarters for investors to realise that we are seeing normalised growth rate on a quarter-on-quarter basis in pharmaceuticals.
That should happen now but on the whole, the attractiveness in the long term competitive advantage of Indian pharma continues. It is a large area and Indian companies have traditionally always had a great competitive advantage and we should not forget that it is because of the pharma sector that we are all sitting pretty today.
Just imagine if the Indian pharma sector did not have the ability to develop its own vaccines and this country had to rely on imported vaccines to vaccinate 1.3 billion people, I do not think our economy would have had a chance to recover. Vaccination is the reason why the economy is now opening up and things can normalise. So the strength and the competitive advantage of the pharma sector cannot be overlooked. If we did not have our own domestic vaccines, this country would be in great trouble when it came to the economy.
Where are you shopping in this market? There is a long list of stocks where a 15-30% correction has kicked in? So for a stock picker, this is a delightful market.
We are pretty much fully invested and we can only shop when new money comes in. We are betting on some of the themes that I have been talking about. Our big bets continue to be in tech; we have some exposure in specialty chemicals and pharma.
Incrementally we see opportunity in consumer discretionary and all the sectors that are opening up and are likely to benefit as a result of the opening up. Most of them are just about seeing recovery come back to pre pandemic levels and we are seeing consolidation there. So liquor stocks, some of the retailers, some of the QSR companies, autos, auto ancillaries are areas which incrementally should do very well going forward from here.
Selectively among banks and NBFCs, we continue to be bullish on Bajaj Finance and ICICI Bank. We continue to focus on some of our core holdings there. On the midcap side, we are fairly bullish on ER&D companies as I have always said time and again that they are in a structural growth phase and that leadership continues.
