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“Going ahead, my take on would be that Jio should pick up and retail should also pick up but I am still a little apprehensive about how the O2C business margins and the profitability is going to sustain,” says Neeraj Dewan, Director, Quantum Securities.



What are you making of this metal selloff and the fact that our markets are the only ones which are underperforming? European markets or US Futures are all staging a massive rebound?
Yes. Already we are seeing some correction in metals and a further massive fall today. An adjustment is going on because a lot of metal stocks had given exponential returns over the last couple of years and because of the fight against inflation by all central bankers, there will be some liquidity tightening and some money will definitely move out of metals and commodity stocks. That is where the adjustment is going on right now.

Year to date, we have fallen much less than what other markets or even US markets have fallen. So, there is also an adjustment going on. We will still, according to my understanding, outperform but some adjustment will definitely happen. There is a huge gap between the percentage by which we have fallen and the other markets have fallen.



When it comes to the capital good space, in particular, earnings from the likes of L&T, the Street is pencilling in a strong revenue growth across the infrastructure and IT segments. Hydrocarbons could also lead to a healthy set of numbers. But the increase in input costs will be a niggling worry for even the engineering conglomerate. What is your view on L&T?
I am positive on L&T. This quarter, you still see pressure because of margin, because of commodity prices but the way the correction has already started in the commodity prices and the way interest rates are going up, some pressure on commodities will ease and commodities should correct a bit.

That coupled with the kind of strong order book that companies like L&T and other capital good engineering companies have, will benefit them once there is executional pickup and margin pressure also going ahead. So, leaving aside this quarter, two-three quarters down the line, L&T should be a clear winner.

Good allocation was made in the Budget also for the road and infrastructure sector. There also orders have started coming in and more orders will come in there. I am pretty positive on L&T and the like. For the next two-three quarters, we would see good benefits coming there with execution and margins picking up.

One space which bucked the trend on Tuesday is the FMCG space. is up 3%, HUL has gained over 3% in trade; , Godfrey , are all trading in the green and we can extend that point even to the likes of and Leisure which are anyway up between 4% and 5%. Would you bet on any of these names in the consumption basket now?
FMCG is one space where surprisingly the results were pretty decent and better than what people have expected. So, though valuations are still a little stretched, looking at how the margins were under pressure can improve once the input prices come down because most of these companies, even HUL, have taken some price increases. If there is any margin improvement, that will give them a good boost to profitability going ahead.

In the case of

, even return ratios are pretty good. They have improved a lot. Results are pretty okay and with the kind of return ratios they have, even at this price, one can get a decent return if one invests in a company like Marico.

As far as the real estate basket is concerned, there is now a headwind as the cost of ownership is going higher because of the increased home loan rates. This is just the starting of that cycle, it is going to get worse. Do you anticipate any demand shock coming in for the real estate pack?
I think it is an initial reaction but the demand is very strong and so it is the initial reaction because of the sudden interest rate hike which the stocks are seeing. I think after the initial reaction, again the stocks should consolidate and move upwards because demand is pretty good as far as real estate is concerned.

Also, in the initial stages of interest rate hike, even if we go to 5.15%, which was the pre-Covid interest rate, even that rate was not considered to be very high and it was still a low interest rate scenario. So even if we have another couple of interest rate hikes, still it will not make that kind of a dent to the buyers.

So I am still very positive but of course I will wait for the stocks to stabilise from the recent shock of the interest rate hike to get absorbed and then look for good bets there for the next six to eight months.

Just taking a look at the kind of brokerage notes that came out post RIL’s Q4 earnings the general consensus is that it remains a buy recommendation, target prices go all the way up to 3200. How are you looking at the way the stock has panned out over the past many trading sessions?
Basically we saw a decent up move in

before the results and I think that is why we have seen the selloff there. One, the results are not that exciting as per my understanding. The main profits came because of oil to chemicals (O2C) business which can be volatile and whether that will sustain going ahead is something yet to be seen.

That is one space where I am a little cautious about future earnings and the other would be Jio results. As such, they have just met expectations. Retail did not do that well as it should have done. The results were okay but not that great and that is why we saw some profit taking there.

So going ahead, my take would be that Jio is something which should pick up and retail should also pick up but I am still a little apprehensive about how the O2C business margins and the profitability is going to sustain.

Thanks

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