Have a balanced allocation and go where there is earnings to support the lofty valuations, says Gurmeet Chadha, Co-Founder, Complete Circle Consultants. What according to you is the next big trigger for the market?The biggest trigger is going to be earnings. There will be differentiation in a lot of sectors, especially in banking. The actual NPAs will be reported and so the real picture would come out in terms of how the collection efficiencies are progressing, how the overdue is playing out, what percentage of restructuring as guided by management is being adhered to. Liquidity events are also very important. We keep blaming liquidity for the rally but liquidity essentially chases growth and the next stimulus the focus on infra to me would be very critical especially for cyclicals and commodities. I genuinely think we are in a commodity cycle and probably just the first leg has gone through. The market has virtually doubled from last March to this March -- from 7,500 to 14,800 almost 15,000 -- and so some amount of caution is warranted. There is euphoria in a lot of pockets and so hope trades and the economy-getting-reopened trades should be avoided. As far as valuation and earnings are concerned, wherever possible, margin of safety should be adhered to. Do not ignore fixed income despite rising inflation. India’s inclusion in the emerging market bond index, world bond index makes the shorter end of the yield curve pretty sweet. So have a balanced allocation and go where there is earnings to support the lofty valuations. Given the fresh spike in Covid cases, do you think any of the healthcare names are worthy of buying?Healthcare is a pretty secular story with a long-term view. The entire Nifty pharma index market cap is about Rs 7.5 lakh crore, which is less than HDFC Bank’s and it has about 4% weightage in Nifty. Compare it with any developed market. The weightage of healthcare would be 10% to 12%. We do like the API players and Divi's Labs has been a long favourite. They have done Rs 1,800 crore capex in the last two years. In the next two-three years, they look set for a nice double digit growth in the top line and may be 20% plus EPS growth. The nine-month margin for this year so far is above 40%. That tells us why it is valued at probably 15-16 times sales. We also like a smaller name in this space -- Neuland Laboratories -- which has a nice mix of GDS, CDMO and oral peptide, peptide synthesis. We like Cipla and also some of the diagnostics names. There has been some consolidation in pharma after the initial runup when the post Covid rally happened. Once the earnings come in, we should see more legs in the pharma space. What has spurred the momentum within the real estate space? Housing is a force multiplier. It is difficult to speculate but you could see more sops either in terms of extension of stamp duty cuts and related measures. RERA also has been very transformative in terms of doing consolidation in the industry. For example, the pace of project development for Godrej Properties has really gone up exemplarily. Their near term project guidance talks of 14 projects with 8.5 million square feet, one of the shortest turnaround time and they also have a nice strategy of spreading their project development across the country in Ahmedabad, Bangalore, Mumbai and NCR. Their strategy is also a little different. Other than outright buying of land, they are also tying up with landowners for joint development. They are also project managers for a few developers with 10-11% share of the revenue. We need to see whether there is any cash strain because of the number of projects they have done looks good. DLF also looks good. It is largely north bound. A couple of south bound real estate players also look good but I am more constructive on the fundamental side over the long term. Only housing and building material names, players like PolyCab, Havells, Kajaria, companies into white goods are the ones which probably will see a cleaner balance sheet, high ROEs and possibly where you can see a broader consumption playing out. What about the entire defensive pocket? Would you tilt towards IT or FMCG or believe that diversification and looking at both of these sectors would be a prudent strategy?I would not call IT defensive. It is a growth sector to be in both in the medium and long term. The deal win momentum is quite robust both in large and midcap names. Also, for Infosys, digital makes up 50% of their revenue. It is growing at about 30%. The pricing pressure on digital is not there because now it is more outcome driven and large deals initially have a bit of a stress on margin but over a period of time they become more accretive and helps get more deals. In IT, there’s opportunity in Cloud and then opportunity would come with the interconnected systems on Cloud which would generate data and which will lead to opportunities in data analytics and AI and Internet of Things. Also, some of the midcap names look good. MindTree for example, has seen both client count and employee count stabilise post their acquisition. In consumption, I like this entire food consumption space. Tata Consumer has three strong legs of growth-- beverage and tea, Tata Salt and Tata Sampann brand which is into pulses, spices and other ready to eat products. I also like city gas distributors and to me they are consumption plays. Players like Gujarat Gas look very good. It is a very secular story with rising demand both from industrial as well as households.
from Economic Times https://ift.tt/39w1Weh
No comments:
Post a Comment