On pharma in light of the USFDA warning letter to Lupin
One of the strongest models which has emerged over a period of time is in the area of CRAMS and APIs. Many of these companies were basically producing an API component as far as the risk revenue composition is concerned. With higher amounts of growth, they are relative scale plays as far as business is concerned. Their customer segments remain strong and at the same time, make the case of a company like Divi’s and even Laurus Labs. Anything which is related to formulations and smart generics are going to face problem with FDI going forward. But there is relative safety in CRAMs and FPI businesses. I would like to stay with companies with a larger focus on growing the FPI portfolios.
On fresh themes in the broader market
I am convinced that in some companies like
, a structural change is happening. They have a renewable energy portfolio and quite a good prospect. At some point of time, that portfolio could be offloaded from the main company and that could result in a faster pace of growth.
Also, the ESG-compliant funds would probably like to look at such a company more systematically. This is one company which shows a decent amount of promise as far as the growth aspect is concerned. Similarly, there are companies which are tech-enabled and I would like to see companies in electrical segments which are employing the tech at the frontend by supplying and distributing electricity or any kind of equipment at the back. So that is one area which looks quite interesting.
Automobile ancillaries are basically supplying the assembly components which are electronic driven and I think components of electronics in every automobile is increasing. , Minda Corp are some of the companies which are focussing more on the electronics segment and to a new line of business which is EV. Such kinds of companies could be having a relatively better time from the point of view of margins going forward. Some of the select companies in our portfolio are coming from different pockets which have digital frontended into their businesses.
What does the market anticipate after such a big jump in inflation?
At this point, I do not think that the central bank would be in a hurry to reverse their accommodative policy. Economy is slowly and gradually coming out of the pandemic-related shock and probably requires more support. I think liquidity will continue to flow into the economy. I do not think inflation is rising because of excess liquidity. Currently inflation is rising largely because food and fuel commodity prices have gone through the roof and this is hurting the economy.
Unless and until we see some kind of a structural change in the fuel and the food commodity prices, I do not think that inflation will come down easily because it is not a local phenomenon. I think it is a global phenomenon. If fuel prices are brought down by reducing the taxes, that could help.
On the other hand, if we do so, how then the economy would get the additional money, particularly for spending during this pandemic? The government then might have to opt for borrowings. It is better that you keep inflation at a slightly higher level at this point of time and allow the economy to stabilise. RBI is expected to continue with its accommodative policy. Let us wait and see. They have a team for MPC, which could give better direction but my take is that even if there is slightly higher inflation in place at this point of time, there is no need to worry put the brakes as far as the liquidity in the system is concerned.
