Sandip Sabharwal, analyst,
asksandipsabharwal.com.
Are all things pointing to a further upside in metal stocks?
That is unlikely because the metal cycle has run its course for now and to that extent, the metal stocks will reflect that. When the overall market moves up, as leaders of the market in the earlier move, they will also show traction but beyond this quarter, it will be tough for this kind of movement to sustain.
There is an argument that this is a commodity super cycle. I would say that this is an up cycle. There is no case for a super cycle because a super cycle requires sustained high global growth rate for several years. Beyond this year, many of the western economies will find it tough to grow beyond their huge debt build up. So that is how I take it. The risk reward right now is not in favour. People need to buy at lower prices to make any sort of decent returns.
Quite a few primary market issuances are lined up. KIMS Hospitals and Dodla Dairy are going to list on the bourses. Last week, we had Shyam Metalics and Sona BLW. The latter had a lukewarm response to its IPO but ended up with a big bang listing. Anything from the IPO pipeline that you are tracking and liking?
KIMS was the only IPO which I thought offered value on the table for investors and a good company to hold for the long haul. The dairy stocks, historically in India, have not really been wealth creators because their profits tend to be very volatile based on the underlying movement of milk prices.
In the near past, milk prices have been subdued because of lockdowns. The fluctuations have been very wide and none of the actually listed dairy companies have not created any wealth. I am not sure how Dodla will do. We know how the IPO listings work. As there are limited stocks, the prices tend to move up in the initial few days and then subsequently it depends on fundamentals. People should be wary of last week’s listings at the current valuations.
What do you make of the Thyrocare-PharmEasy deal? A startup is buying a listed company for the first time!
It is a very surprising development because it has not really happened in India, although overseas it has happened to some extent. For the Thyrocare promoter, it is a great deal because of the way the diagnostic stocks have moved over the last one year and if they wanted to sell, they have got a good deal. PharmEasy is acquiring something at a high valuation. They need to make it perform and to that extent, from a purely minority investor perspective, it really does not change so much. I do not think people should get too excited because the valuations at this point are somewhat stretched. Longer term, we need to see what direction and strategic initiative they take to accelerate growth beyond the normal growth rate in the diagnostic space which is expected to be 10-12%.
But in the near term, do you think this deal will make the shareholders of Thyrocare a little uneasy because there will be some gestation period before PharmEasy takes over the reins and is able to grow the business further?
There will be an open offer and that creates a base for the stock. And to that extent, downside remains limited. On the upside, what strategy the company will follow for growth going forward will become clearer over a period of time. There is an expectation because PharmEasy with its pharma online ventures as well as online consultations, etc, could use this platform as another growth platform and the current businesses could add to some growth for Thyrocare but that is something which we will need to see. Overall, I do not think that there is much question of uncertainty because PharmEasy will be more aggressive on growth than the current promoters.
What is the view on the insurance space?
Growth traction should be good in insurance overall. After Covid, many people who were not thinking of taking insurance are trying to go in for that. So directionally, going for the insurance companies is good. Near term challenges are higher claims because of deaths and illnesses. That is where the near term profitability could get impacted. But this pandemic has only accelerated the need for insurance and the conviction among people to buy insurance.
In terms of pure valuations, in the listed space, the life insurance basket —
, ICICI Pru as well as SBI Life — are stretched but are good direction plays. So if one has a three-five-year view, there is no issue with these stocks. The near term the valuations have moved up and to that extent return potential has gone down.
