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“The big story in remains in tobacco and cigarettes and it would pick up substantially going forward,” says Rajat Sharma, CEO, Sana Securities.

Some of the new age tech companies like Policybazaar, as well as MapMyIndia are making a bit of an up move now. After the clobbering that all of these stocks have got earlier in the year, does it make sense to have a fresh look at them?
I do not think so. I was on your show before the launch of each of these IPOs and for all of them I said this is a horrible idea and I will tell you why I said that. Zomato may be one exception. I am not going to say Zomato is a bad company only because the stocks have fallen, but other than that, look at

. Where do they really earn their revenue from? I know it is a brand with identity and everybody has it on their phones and I guess that is the reason why everybody wanted to hold a part of it.

But what is the revenue really and how are they planning to increase it? They are doing a lot of things which a lot of other companies are better at doing and the only core thing that they do is help people transfer money because their UPI codes are everywhere and that is not much of a reason to invest in a company. It is a great product and one can use it but why should the company generate higher revenue or in fact any revenue for that matter?



Read Also: Rajat Sharma on why he will avoid financials & L&T, buy FMCG stocks now

I still can understand Policybazaar. That at least has a portion of the insurance premium when they sell insurance. But that is not true for most other stocks. I have no idea why a lot of people were so excited and why these IPOs got oversubscribed. My view has not changed at all about any of these.

This week itself we had a few of the listings as well as IPOs for Delhivery, Venus Pipes opening. We also have the LIC IPO number out. What would be your suggestion for people who have got the allotment of LIC IPO? Are you looking at some listing pop there? As far as Delhivery is concerned, would you recommend a subscribe?
The only IPO in recent times that I have liked is the Campus Footwear IPO. I was looking at their accounts and their books. It looks exciting.

But other than that, we are talking about LIC. I think it makes sense for retail investors to sell it if they get a listing at a premium, which is they get a fairly good discount to the price band which the company offered. Having said that, if you do get the company to list at a premium, you should sell it and get out of it. If you do not, then the company opens at a discount and you should be thinking about why you wanted to apply for this in the first place.

This is a company which does not need money. The government wanted to meet its disinvestment targets and so they did that IPO. They are constantly losing market share to HDFC, ICICI. We have a financial distribution service at my firm itself and I see a lot of people interested in buying

policies and ICICI policies because the products are better, their IRRs are high. LIC is taking a back seat. If you do not want to buy a product of a company, why should you want to be a shareholder in that company? It makes no sense and I really did not understand why why do you expect the company to open up at a premium because it is three times oversubscribed and they have offered a good discount? But yes, after it opens at a premium, you should ideally just take the profit in that and get out of it.

Let us discuss ITC. The bounce back has been evident but what is your outlook when it comes to the individual businesses?
I think the company will do fairly well going forward and the reason is simple. As I said, I like companies which are cash rich, which do not have any debt on their books and which make no mistakes. Cigarettes are still their largest business and I think cigarettes as a business struggled a lot until about four years back because there was a constant upward revision in excise duty on tobacco and then there were two years when we had Covid and s lot of people give up on smoking during those years.

A lot of people stopped smoking at that time as cigarettes were not available or were black marketed. But none of that comes to the company. I am convinced that as the world opens up, cigarette volumes and sales will pick up going forward and that is the largest part of their business. Buying this stock right now for someone like me, who is first looking at safety of principal and reasonable return on the money deployed, you are getting the stock at 4.5% dividend yield. if it goes down by more.

I am convinced this stock will do very well going forward. In terms of verticals other than cigarettes, their non-cigarette FMCG business is finally showing promise. Hotels are struggling and will continue to struggle but that has never been a big business for ITC. It is more of a liability. I think at some point, they should seriously consider listing that separately. But we have not really looked at this aspect of ITC selling wheat in middle eastern countries because of the Russia-Ukraine crisis. I do not think that is a reason why I am going to look at buying ITC as things keep happening from time to time and is not going to last forever.

The big story remains in tobacco and cigarettes and it would pick up substantially going forward.

Do you think that once LIC is done, part of that subscription money is going to find its way back to the market or not and by then do you think that one would see some relief at the overall market level?
That depends on how the LIC IPO shapes up. If it does open at a premium and then comes down in price, some of this money may get back into the market. In the past, we have seen that during these largest IPOs in India with the really famous brands and companies listing money does get withdrawn from other stocks and stock markets in general and goes into that, but that money never really comes back.

So even before the IPO, there was a lot of news about a lot of money getting pulled out of the markets because a lot of people were trying to block money for the LIC IPO. I would not think that really ever happens. It is more likely this money will be permanently gone and LIC will benefit from that because essentially this money is what gets invested into LIC. The company takes the proceeds and what is left is people trading on stocks which are listed on the exchange.

After it is listed, some would want to sell their stocks and buy something else at the same time there would be somebody else who would be buying that stock. So money will keep moving between stocks. An IPO is a perfect mechanism for money to go out completely or get invested into companies. I do not think people are going to sell and get back or that will take markets higher.

Thanks

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