We’re Bullish on Pharma, IT, Auto & Pri­vate Banks

The Economic Times - - Money -

Com­pa­nies could spring some sur­prises in the March quar­ter led by com­modi­ties re­lated, ce­ment and au­to­mo­tive com­pa­nies, said Raamdeo Agrawal, joint man­ag­ing di­rec­tor, Moti­lal Oswal Fi­nan­cial Ser­vices. In an in­ter­view to Rajesh Mas­caren­has, Agrawal said he is bullish on IT, pharma, auto, pri­vate banks and consumer com­pa­nies. Edited ex­cerpts:

What’s your as­sess­ment of global risk and its im­pact on In­dia? There are prob­lems re­lated to trade and fi­nan­cial flows. Strength­en­ing of the dol­lar or yuan de­val­u­a­tion will pose some chal­lenges to us. How­ever, there is a huge liq­uid­ity avail­able glob­ally with zero in­ter­est rate sit­u­a­tions. There is a cri­sis of yield; there is a cri­sis of growth. World is run­ning around here and there for the yield. You should be com­pet­i­tive enough to give high qual­ity growth and yield. Why are in­vestors com­ing to In­dia de­spite an un­sta­ble sit­u­a­tion? Be­cause, In­dia is at a last fron­tier of a big growth with pos­i­tive yield.

What China has done in last one decade — from a $2 tril­lion econ­omy to a $12 tril­lion econ­omy — that op­por­tu­nity is there in In­dia now.

Will firms see earn­ings re­vival in Q4? There will be some sur­prises this time. My sense is that in many of the com­pa­nies’ an­a­lysts will not get right even though you will not see much dif­fer­ence in ag­gre­gate num­bers. For in­stance, oil com­pa­nies will see in­ven­tory prof­its now as oil has re­bounded from $25 to $40 per bar­rel. Com­mod­ity burst that we see in last 7-8 quar­ters has now bot­tomed out. I ex­pect some of the com­mod­ity re­lated com­pa­nies, there will a huge swing. Ce­ment sec­tor could also see some re­vival as ce­ment vol­umes are good this time. Some of the au­to­mo­tive firms like Hero, Eicher Mo­tors can sur­prise as the cost was down, while mar­gins were pretty good. Over­all there will be some sign of re­vival ex­pected in the fourth quar­ter re­sults.

There is a view that mar­ket val­u­a­tions are rich... I am a per­ma­nent bullish in­vestor and I al­ways feel bullish. I am not con­cerned about the bad por­tion of the econ­omy. As an in­vestor I pick and choose where the op­por­tu­ni­ties are and I will put money out there. In a bad time, we will get good price and in good times, we get good re­turn.

In a lot of com­pa­nies, there are fan­tas­tic fran­chises. In any val­u­a­tions mod­ule, there are three com­po­nents — breakup value, fran­chise value and growth value. Very few com­pa­nies are grow­ing rapidly, but you have to bal­ance the op­por­tu­nity — how much you should pay for the fu­ture growth and how much for the fran­chise. This game is now very cal­i­brated.

What are you buy­ing now? We are buy­ing IT, pharma, auto, pri­vate banks, consumer and some se­lec­tive stocks from other sec­tors like BPCL, HPCL, Indigo and so on. Mak­ing money in the stock mar­ket is about a bril­liant port­fo­lio and not about a sin­gle stock. If you are not spec­u­lat­ing and if your port­fo­lio is not lever­aged, you will al­ways make money. Smart in­vestors will make higher money and oth­ers will make less money, but one will def­i­nitely make money. Pub­lic sec­tor banks should be avoided cur­rently as lot of mess yet to be cleaned up.

Why are you so bullish on avi­a­tion? The big­gest eco­nomic event in the world, par­tic­u­larly for In­dia, has been the col­lapse of oil prices. Avi­a­tion is one such sec­tor ben­e­fited the most out of that as 40% of the their cost is ATF. To­day it has come down by 8-10%. If you bring down the fares, I think there would be mas­sive crowd to shift from train to air. In a country like In­dia, only 40-45 air­ports are ac- tive whereas at least 200 are needed. That’s why enor­mous op­por­tu­nity is there in avi­a­tion sec­tor where com­pe­ti­tion is very low.

You re­main pos­i­tive on pharma... In­dian gener­ics have no global al­ter­na­tives for the long term. I see a sign of ma­tu­rity scal­ing up among In­dian pharma com­pa­nies. Most of the pharma com­pa­nies can throw one of the most won­der­ful op­por­tu­ni­ties to buy 30-40% cheaper cur­rently if you have faith in the man­age­ment. Busi­ness op­por­tu­ni­ties are be­yond doubt be­cause world needs gener­ics. The is­sue is how man­age­ments are com­pe­tent to over­come the reg­u­la­tory hur­dles. The cur­rent prob­lems are tem­po­rary in na­ture.

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