What are you making of the market texture of late?
We have seen a lot of volatility in the last 15 days and that is expected. We have moved too fast and too sharp. So obviously, some cool off is required and people want to book profit also. There are some year-end requirements also. But leaving aside all of that, we are positive and constructive on the market. We feel that probably this turmoil is giving us an opportunity to add certain stocks, where one might have missed the bus earlier. So we are using this volatility in our favour.
We continue to explore opportunities in the stocks that we like in IT space or pharma or in metals. We want to use any kind of dip for adding on to the portfolio. We expect this kind of volatility to remain for some time. We are in a transition phase. The PE expansion phase is over now. From here onwards, it is the earnings expansion phase. The earnings expansion will come when we have this year-end earnings April 15 onwards and then the June quarter numbers will confirm that.
The market is going with a view that we will have 30-40% earnings growth in FY22 and FY23. If that continues, then probably the market will continue its run. Otherwise, there will be some hiccups. This volatility will remain because of all these expectations from the market but in the long run, it will be in our favour. We should be using these dips to add whatever we like.
What makes good at the right price at the current levels? Would it be within the auto space? Are there any banks that you want to pick out or would you venture into sectors like speciality chemicals?
All these three sectors have actually performed very well and most of the stocks here, in terms of valuations, are far ahead of their historical averages. So finding new opportunities will be difficult but you can still look for stock specific ideas in these sectors. Right now, we are very bullish on metals as such and we have added steel, aluminium stocks in our portfolios. On the financial side, the last time we talked, I said we are adding SBI.
In specialty chemicals,
is one stock that has not performed this year due to problems in oil and ATBS their main products. But it is going to perform much better in the next two-three years and it is giving us a good entry point also. Naveen Fluorine, all of them were in our portfolio but they have all moved far more. So probably, we would make a fresh entry in Vinati Organics.
How has performed? Piramal Pharma has acquired 100% stake in Hemmo Pharmaceuticals. What is your view?
The stock has performed very well and in fact there are two divisions. The stock performance was more to do with their restructuring of financial businesses and problems getting solved on the financial part because the driver of stock price for Piramal Enterprises is not the pharma business. Although pharma business is still 30% of the total company, the stock price is driven more by what happens on the real estate, what they have done in Lodha and other real estate developers. That aside, they have been concentrating on pharma for the last one year. They have been guiding that they will look for good opportunities here and they are trying to revive that. The API business is a fantastic business which is doing very well especially after Covid, So this is a right step in the right direction.
I do not know much about the pharma business and so I will refrain whether this is a good valuation or not. But I can say directionally this is the right thing. They had mentioned earlier in their calls that they would look to do something in pharma and it will also be a focus area. So I think this is in that line.
Would you be tempted to buy the decline in banks?
They are coming to a very good entry point but we will wait for some more time because we want to see what happens in this quarter’s numbers now that the Supreme Court dispensation is out of the way.
Although most of these banks have already announced what is their actual number and what has been on the books, ultimately it has to come out on the books. We will see what numbers actually appear on the book and if those numbers are in line with what they have already stated, there is not too much of variation there. Then the second leg of this rally can start and that should be the good point to enter these banks again.
In the longer term, we remain positive. We think that they have all handled this crisis very well and it is not those fears of asset quality going haywire is probably now behind.
We remain constructive, HDFC Bank, ICICI Bank and Axis Bank. They were always there in our portfolio. We had booked out some profits in between but we will replenish that once these numbers are out.
Where do you stand when it comes to the auto ancillary basket?
We are quite bullish on this sector as such, instead of playing OEMs directly, we want to play it through ancillaries and we had added Minda Industries in November- December.
Tech is also on our portfolios and recommendations. Just a disclosure, I do not personally own any of these stocks that we have talked about in this interaction but we have recommended them to our clients. Some of these may be part of the portfolio and some may not be the part of the portfolio as of now.
In ancillaries, we are playing in Lumax Auto Tech, Minda Industries. We are basically playing the theme that these are companies where the portfolio is minimally impacted by the EVs. I would say avoid engine parts, go for sheet metal parts, go for rubber parts, go for tyres.
So Ceat is on our list,
has been there in our recommended list. Like that, avoid things which are directly related to powertrain or engine because that might get impacted due to electrification. Other ancillaries are on our radar and three, four of them are already there in the portfolio.
