What is your take on private banks? Is there value in the big ones now?
We have a positive view on private banks. We are already holding and and increasing the allocation whenever we are getting a chance. The reason is that the valuations are very attractive. Also, in the last three quarters, consistently both these banks have shown very strong improvement in their asset quality as well as growth.
On their part, they are all highly over owned by FIIs and FIIs selling continues. So, probably that is the reason why we are seeing the stock performance is not up to the mark while operational performance from the company is perfectly okay.
So any decline gives a good opportunity to accumulate at one’s own pace. One does not have to chase the stock because sometimes when the companies perform well and there are a lot of institutional buyers, one does not get a chance to buy them at the right price. So here is an opportunity for us. We are maintaining that and we believe that once the economy picks up, growth will come up. These banks have cleaned up their books, tightened up their systems processes and so asset quality is well under control. These companies are well prepared to take on the next phase of growth.
Are valuations still looking stretched for the IT sector, which is growing at 8-9%, 10-11% and where PE multiples are north of 30?
Right now, PE is looking stretched because E is not there and once the E starts coming in, then PE will automatically become attractive. Our faith is that once the economy recovers and we are back into the normalised economic environment, these companies are well prepared to take that advantage and they will be the beneficiary. So once that happens, this earning automatically will come back and then the PEs will look much reasonable.
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What is the good trade then – IT or banks?
Right now we have a preference for banks. In IT, we have and in the long-term portfolios where we have a 3-5-year horizon. But we have reduced exposure to IT substantially in the last few months. So while we have increasing exposure in banks, we have been reducing it in IT for quite some time. We have moved out of midcap IT almost entirely except for one. Intellect is still there and among largecaps, Infosys and Wipro are there.
What is your opinion on some of these new-age tech companies like ? Though Zomato’s net loss has widened in Q4, the company has given quite a bit of clarity when it comes to the roadmap for profitability. Is the tide likely to turn or is this just a short term bounce?
Daljeet Singh Kohli: The announcement saying that there will be no more minority investments in other companies, was very much liked by the market. The market was waiting for that. More clarity will come in the conference call when people will ask a lot of questions and if management is able to give a clear vision about what they are going to do with existing investments and how they are going to manage those, it will help.
The market is very clear that this company will not make profit in a very near term. But what is more important is that you do not do anything to aggravate that loss.You are in a business which will grow over a period of time, you are developing an ecosystem, all these things are fine but at least do not do something which is aggravating that loss again.
So if the company stops that, then the market will take it positively. Some of it we have already seen in today’s price movement. The stock has come up 60% and so a 10% up move will have no significant impact on the portfolio. Unfortunately, we are also holding Zomato in our portfolios. We have not added any further and are stuck 2-3% from the beginning. We are waiting for it to settle down somewhere.
If the management gives some clarity, then maybe we will add some more and try to bring our cost of acquisition down, but as of now we are just staying put there and waiting for management clarity.
What is the outlook on the entire auto space? Do you believe it is time for the auto companies to remain on the right track as there are strong opportunities here?
I think yes, they are coming closer to our buying zone. We are looking positively and constructively on the sector. As of now, we have only
and in our portfolio, but Hero Honda and are also likely candidates.
The way the numbers have come out in Q4, the only thing to watch out for is the auto numbers. On the positive side, all these companies have managed their costs very well. They have taken timely price hikes and have been able to mitigate a lot of pressure on input costs, which has resulted in margin not going down totally. Though margins have been compressed, they have still been able to manage largely. With all these things easing out now, they will come out with much better numbers in future quarters. Valuation wise also, the stocks have become very attractive. There are buying opportunities in this sector.
Auto ancillaries will also be another play because if the OEMs do well, then it flows into the ancillaries. So some of the smaller ancillaries, midcap companies will also come on the radar.
Some pharma companies are coming back to limelight for good reasons or bad. is reacting positively while Divi’s has been coming under a lot of pressure and that has been the trend across the pharma sector. Which are the top bets that you would have in this particular space?
We already have three pharma stocks in our portfolio – Divi’s,
and . We believe that Divi’s numbers were fantastic. The market’s reaction is probably overreaction because the stock is already at a very high valuation. It always trades at stretched multiples and so in the current environment, it is natural that people who are holding it from lower levels, would want to sell out.
We are not bothered about what happened in the last two days. Too much price damage has happened on Divi’s but it is a fantastic company. It has a very strong moat and it will come back over a period of time. In fact, we will advise that one should add Divi’s in this opportunity to hold it for a longer term.
Gland Pharma is a call on the differentiated portfolio basically injectables which is a very high margins and high quality product business.
On Shilpa Medicare, we have a positive view. We do not hold it but for Shilpa Medicare, one problem is that its numbers are always lumpy and one quarter will be a very good quarter and then some quarters they will just go lacklustre. They have also demerged their API business which will also be listed. So, some kind of value unlocking can happen.
Shilpa Medicare has a very strong product portfolio and product pipeline which has somehow in the last four, five years not been able to monetise well but it is a company which has a strong capabilities and it can also result in good numbers as and when those opportunities arise.
As for other pharma companies, it is a stock specific call. We believe a lot of domestic formulation companies should be able to do well because growth in India is good but the only problem is that because of Covid and all these oneoffs, some of these valuations got stretched.
IPCA is a good example where valuation got much stressed and it is getting corrected. So, at some point of time it will become a good opportunity to enter. Right now we are holding three stocks, Gland, Alembic and Divi’s.
(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)