Best strategy is to stay neutral: Gurmeet Chadha

Stick with market leaders, hide behind earnings support. Do not chase hope trades or some things turning around or subject to NCLT resolutions, says Gurmeet Chadha, C0-founder & CEO, Complete Circle Consultants. Do macro data points indicate that the markets are moving up from here or does it seem like the best is behind us?The high frequency indicators show economic recovery is on track. The Nomura business resumption index is almost back to the level just before the second wave really hit us and are almost similar to pre-Covid levels before March 2020. Power consumption data, e-way bill generation, Google Mobility index -- all point towards recovery but we have seen that in the short run, market and economy performance can be disconnected and we should not draw any short term inference out of it. My sense is markets are a touch expensive and we are in a situation where after making good returns, one needs to take a fresh guard and see the earning support. Do not overpay and keep some powder dry. Enough opportunities will come our way but broadly speaking, there will be opportunities as we go along. Right now, the best strategy is to stay neutral. AMFI data show record numbers of retail investors. Financialisation of savings seems to happen in the equity markets. The IPO market is also hot at the moment. Will the momentum stay with the largecap blue chips?I would say sector leaders. For example, you spoke about financialisation of savings. Look at something like CAMS, it is not a large cap but it is a duopoly with 70% market share. Bulk of the revenue model is as a percentage of manage assets. They had 70% assets. They are moving into new areas like insurance registry, RTA for AIFs, CRA for NPS, they are working on their technology platform. So, it is a proxy play to the equity culture and financialisation of savings. There are a lot of good companies among city gas distributors. There are lots of companies in tiles and home improvement themes. So broadly stick with market leaders, hide behind earnings support. Do not chase hope trades or some things turning around or subject to NCLT resolutions. One has to be neutral and take cover as much behind earning support as possible. We like specialty chemicals and healthcare technology broadly but let’s wait for better entry opportunities as we go along. Within specialty chemicals, which are the winners for you?There’s quite a few of them. For example, Laxmi Organics has shown great performance since listing this year. We like Deepak Nitrite also. The phenolics business is now two-three quarters running at 150-120% capacity utilisation. The IPA business and the base chemical business continue to do well. They are getting into clean green tech like photochlorination, etc. It is one of the best backward forward integrated player. Look at something like Navin Fluorine. CRAMS and speciality chemicals contribute almost 65% to the EBITDA. For MMP, which is their multiproduct platform, expansion is on. Their bread and butter business which is inorganic fluoride and refrigeration gases also continue to do well. We like Aarti also. Aarti is into benzene, nitro chloro benzene derivatives. They almost go up to 6 level of benzene derivatives. Of course, we like PI Industries also, These are the three-four names we like but as I said, everything is at a premium right now. In specialty chemicals, the sourcing mix has changed early. We have already seen some bit of China plus one, import substitution leading to change in sourcing mix. In APIs that cycle is three-four years because various approvals, compliance are needed. What we are seeing in specialty chemicals, would probably start playing around in APIs, with some lag.

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