What are you doing with oil sensitives as the market is obsessed with the Fed commentary and what is happening around the dollar index, commodity prices and especially crude, which is a big RMC for paint companies. It has eased off quite a bit?
While they have eased off, the bigger concern is crude falling because of fears of recession. If recession starts in Europe and expands to India and other countries, the overall demand will go down. That is the bigger worry and from that perspective, I would stay away from investments in companies like
. But yes, there can be a positional trade.
Pharma has made a strong comeback. Do you think it makes sense to at least have some exposure to pharma names?
Pharmaceuticals as a sector has underperformed over the last couple of years and even now, after a brief rally they are underperforming. Various companies, whether it is Sun Pharma or Glenmark, are all trading at very low multiples relative to their fairly visible growth which will happen despite or in spite of a recession. These are fairly recession proof companies as we know and valuations are on their side.
So selectively Sun Pharma, Cipla and even Glenmark are looking good because their earnings are fairly certain at this time.
Is the best over for the banking names at least for the year or do you still see pockets like etc which makes a very strong investment bet?
The big uncertainty is the level to which interest rates in the US will continue to rise and therefore RBI will be forced to follow suit in continuing to hike interest rates. Now it is almost a given that another 75 bps from the US Fed is going to happen. The future path is going to determine therefore the borrowing cost of corporates in India. Which means higher borrowing costs for corporates translates to lower future credit growth which is clearly negative for Indian banks.
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That is the conundrum that the Indian banks are facing, the good news is they have cleaned up their books, the NPAs are under control but the uncertain news is we do not know where the interest rates in the US and therefore in India going to peak, until we know the peak of interest rates I think credit growth will be revised down for banks which means multiples will come down.
Is there any stock that comes to your mind from this entire consumption basket that you would want to highlight?
In the consumption basket, have a number of brands like Tommy Hilfiger which are all market leaders and higher up the price points, the more they are resilient to spending by the higher end consumers. So Arvind Fashion looks good, & looks good and continues to look okay.
In consumption space,
When it comes to retail therapy, where do you find comfort to buy afresh? We have seen how some of the clothing retail plays have done very well?
Retail therapy is clearly here to stay but the stocks which will do well,
has actually not caught up as much as Metro Shoes and other stocks. Bata trades at probably a far lower multiple compared to Metro Shoes because its margins are lower. But during the festive season, they have a very strong franchise. They are not just in tier one but across tier four, five, six towns with a very strong brand recall. Bata the stock has not done much and fundamentally looks strong.
Do you think the demand for cement stocks is just a result of increased real estate demand post monsoon or is there a case to be made in terms of the margin improvement as the raw material prices have cooled off?
For the cement sector, the raw material costs have come off sharply and petcoke prices have corrected substantially at 40-50%. Price hikes till last month did not stick but are now appearing to stick especially for the southern players like
, Ramco and Dalmia Bharat which would benefit
They are trying to push through another 3% price increase which is still far below any inflation increases and therefore the price would stick, the valuations are attractive in spite of the runup. There is still significant room for these stocks to do well.
Since you were talking about the global headwinds, is it fair to say that IT becomes a bit of an avoid at the moment?
On the contrary, IT is looking good for the simple reason that when the dollar is strongest, it imports disinflation into the US. So, anything that is priced outside the US, becomes cheaper. IT services is 100% of the revenue for companies like
, . 90% plus business comes from the US. If there is going to be inflation and you improve productivity through IT, the valuations come down.
Earnings growth rate of IT companies for the next three years are likely to be higher than they were pre-pandemic. So with a combination of higher earnings growth rate and as well as a dollar to support, IT is looking good in the current juncture.