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The fundraise will remain a key overhang for Bharti which otherwise had started doing relatively better in the last one or two quarters. We will have to wait for another three to six months before we see some positive reaction on it, says Hemang Jani, Equity Strategist & Senior Group VP, MOFSL

On Bharti Airtel
The market took the announcement of fundraise with a negative surprise because already for the last one-one and a half years, the capex and the debt part on Bharti’s balance sheet has been increasing and the takeaway from the management was that a large part of capex was behind them and one could expect ARPU increase and things will get a little better. At a time like this, when you see a fundraise, there is definitely going to be some concern as to what exactly is going to happen in terms of capex.

In the case of ARPU, we are seeing a little bit of positive news on the prepaid entry level segment, but at a broader level we are not seeing any incremental positive news. So the market has taken it negatively. It remains to be seen what form and shape the fundraise is going to happen; whether it is going to be a strategic — 2%, 3%, 4% kind of a stake or if they are looking to do some sort of a rights issue that remains to be seen. This will remain a key overhang for Bharti which otherwise had started doing relatively better in the last one or two quarters. We will have to wait for another three to six months before we see some positive reaction on it.

Anything that catches your attention based on the new drone policy?
No, we have not really looked at the details and I cannot think of any specific names where there is going to be some sort of positive impact. We will have to wait for some more details before we can comment upon the policy or the names as such.

Is the Made in India defence theme suddenly losing steam?
The way we should look at this is that we had a big bump up in the last 10-12 months across many of these names and now that focus has shifted to largecap names. We are seeing a bit of a cool off in the midcap names but overall, defence is something that you will see playing out over a period of time because the entire thing about the orders and the government policy making takes time and from a investment perspective, Bharat Electronics and some of the private players like L&T and some of the defence names would remain in the reckoning. But we might see a bit of a cool off in between.

From our perspective, BEL and L&T are the two names where we have an extremely positive view, from a defensive perspective as well as L&T subsidiary valuations and overall pickup that we are going to see in the E&C business.

After some underperformance, metals and IT had assumed market leadership. What explains the move in the FMCG pack in the last 10 odd days?
Part of that is something to do with the rotation both in terms of the largecaps catching up and within largecaps also, large outperformance was coming from metals, IT and we had seen cool off in consumer and pharma. So FMCG names are coming back in action and we have always felt that the performances of most of the FMCG names in the first quarter were quite good and some of them also reported high margins despite the raw material prices going up. The management commentaries both on the rural side as well as overall basis, are sounding far more optimistic and that explains part of the outperformance in the past one week or two weeks.

Having said that, we have to reckon with the fact that the monsoon has not been that great and recent reports show there is a deficit of 10%. We have to see the rainfall distribution and which states have got affected more and what kind of impact that can have on some of the rural focussed companies including FMCG names. But let us keep our fingers crossed and hope that things really pick up in terms of monsoon. Overall, we continue to like Dabur, HUL and Marico within the FMCG space and we think there is a case for recent upside from a portfolio perspective.

The Madras High Court has ruled that “bumper-to-bumper” insurance should be mandatory whenever a new vehicle is sold, from September 1. What could it spell for the likes of ICICI Lombard and Chola Finance?
The development has come as a positive news for insurance companies but one important thing to understand is that this is just a Madras High Court verdict and it has to be cleared by the insurance regulator also because this involves a issue whereby the person will have to decide whether he wants to bear the cost or he wants to take the insurance and going by the precedence, it seems that this may not go through that easily.

So when it is finally approved and in what form and shape, remains to be seen before we take a broader call. There might be some positive kneejerk reaction but eventual impact will depend upon the timelines and what kind of pricing are we really looking at so it has to be seen in that context.

If tapering is announced, should one get out of metal stocks lock stock and barrel because there are so many variables that you cannot only look at demand in China and take a view on metal stocks?
Any adverse signal on liquidity flows or tapering would definitely have an impact on the interest rates and flows both. From a metals sector perspective, it is more important to understand that a large part of the demand is coming not only from China but from the rest of the markets — US, Europe, emerging markets and India. We all have seen an uptick in the economic cycle. It is a matter of how the prices behave over the next one quarter versus what the market consensus is expecting.We continue to like SAIL and Hindalco.

In the last two, three quarters, the earnings season has been good. Most of the companies have either met expectations or exceeded that. Do you think that this whole inflation story is going to be a downer for margins, for EPS at least in the second half of FY22?
The earnings season has been pretty good and overall the management commentary has also been good and the fact remains that one is really looking at a very elevated growth for this year and next year or both. So the point to look out for would be whether there is going to be some sort of a disappointment — maybe the monsoon related worries or the taper related. One has to see how things pan out over the next few days.

Both global liquidity and the actual earnings and the kind of positivity that we are seeing, there may not be a case for a significant cut in the market. There might be a bit of a rotation either from midcaps, smallcaps and much excitement in the IPOs to largecaps. Within largecaps, may be some of the defensive names are getting into the limelight. But overall, the structure remains quite positive and we would definitely look out for opportunities if we have corrections.

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