If an investor has a slightly longer-term view, he should make a pharma basket and consider largecaps like Sun Pharma or Dr Reddy’s even at current levels. Enlarge the basket by including Aurobindo and Natco Pharma and the smaller names like Shilpa Medicare in the mix, says Sudip Bandyopadhyay, Group Chairman, Inditrade Capital.
On positive commentary from IndusInd Bank & HDFC Bank
The market has been too pessimistic about the banks’ prospects. We are on the recovery path and under the circumstances, banks businesses are growing and that is what is getting played out. Indications from some of the top banks including HDFC Bank are encouraging. Overall, even now, some banks are looking reasonably priced. There is still a valuation advantage in ICICI Bank and SBI and investors can consider buying these banks at current level. HDFC Bank and IndusInd have moved up quite a bit and so I do not see much gain in the short term, but for somebody with a long-term view, these are good buys.
On top bets in pharma
Pharma definitely needs to be in one’s portfolio at this stage. I strongly believe that a rerating is happening in Indian pharma and that is going to continue for some time. We have probably seen 20% of the rerating but it will take about one, one and a half years for the entire thing to play out.
If an investor has a slightly longer-term view, he should definitely look at some of the large companies like Sun Pharma or Dr Reddy’s even at current levels. One can also enlarge the basket by including Aurobindo Pharma and Natco Pharma and some of the smaller names like Shilpa Medicare in the mix.
I have been a firm believer in pharma because of the inherent volatility due to US regulatory challenges. It is always better to build a basket than put all your investments in one particular stock. If somebody is betting on pharma, my suggestion is build a basket of the stocks I talked about.
On betting selectively in defence space
I have been bullish on the defence sector. The government has been working towards making the defence industry very, very strong locally. There are some excellent companies in this space. There is Bharat Electronics which continues to be on my wish list. It is a fantastic electronics company in defence and can definitely be bought.
Mazagon Dock is a great state-owned company and the recent issue was at an attractive price. I believe it is going to be an excellent story going forward. The other dockyards Cochin and Garden Reach also are good at current levels. Overall, we will see a lot more action in the defence space in the near future but as things stand today, the stocks I talked about can definitely be looked at.
One more stock I would like to mention is not a defence stock but they have a significant hold in the defence industry. It is Bharat Forge. Its US business has shown significant upward traction and considering the potential of the defence business in India as well as what is happening in their US business, Bharat Forge can be looked at current levels.
On telecom sector
It is a very complex space. If you leave aside Reliance, there are two other players and there is still a question mark over Vodafone’s future. They need to raise a lot of money to be viable and competitive. Beyond the AGR and related issues, the fundamental issue with Vodafone Idea is that they need to significantly improve operationally. They have been losing customers very rapidly and that needs to be stopped sooner than later. The quality of network performance needs to be improved and there is a long way to go before we can comment on Vodafone. Short-term market fluctuations and speculative buying can continue here but fundamentally, I have become positive on Bharti Airtel post the massive correction the stock saw over the last one-one and a half months.
Post this correction Bharti Airtel definitely looks good. Their Africa business has started performing very well and their ARPUs have stabilised there. It is showing signs of progress as well. As for the India business, their ARPUs may improve going forward but beyond that, there is a question mark regarding 5G and 4G auctions going forward and Bharti’s ability to raise funds further. However, SingTel is strongly behind Bharti and they should not have a major problem raising the money for bidding for 5G and that should maintain their competitive position. They have been benefiting big time because of the woes of Vodafone and at current level that definitely looks good.
My view on SBI has been extremely positive for the last three, four months. I believe that SBI is a fantastic buy at current levels. The stock price has not done much but if you look at the potential there are a couple of factors I would like to point out. Number one is that with the economy improving and showing signs of recovery SBI will definitely benefit as the largest bank in India. Asset quality has already been improving. They have taken adequate positions and the demand for loans is increasing. Overall, business-wise, it is going to be a very good period for the next six to 12 months.
The second factor is that subsidiaries of SBI like SBI Life Insurance, SBI Cards and all others have been performing exceedingly well. SBI also has been strategically divesting stake in a gradually calibrated manner and that is yielding excellent results for the SBI shareholders. I believe if somebody has a one-year holding in mind, it is a fantastic buy at current levels.
On recent listings
Some of the listings were excellent and they definitely are good quality stocks. They are from differentiated sectors and businesses which the market has not seen much. I can talk about CAMS, it is a fantastic company. We talked about market infrastructure businesses and CAMS is one such business. We have seen what has happened with CDSL. CAMS is pretty much on similar lines. They provide the backend support to 80% of the asset management businesses in India. It is a very well managed company and the valuation at which it was offered for listing was attractive and we have seen the results there.
I have briefly mentioned Mazagon Dock. Again it is a fantastic company, one of the very well managed PSU companies with capacity for manufacturing submarines as well as warships. They have gone into ship repairs as well. Their order book is more than 10-11 times of last year’s total revenue and they have a long growth path. Valuation at which it was offered was around or less than the cash and bank balance in the books and so it was very attractive. I expect it will do very well post listing as well.
We are a little conservative on metals at this stage. I will wait and watch how things pan out post US elections. Also we need to watch out about the US-China trade relations and the embargo on China and Chinese manufacturing. In the next 15-20 days, I will be careful about metals.
Having said that, the fact is restocking has been happening in China and that has been driving metal prices up globally and India definitely has benefitted out of that. But keeping that aside, if I have to pick up one of these companies in the domestic markets, I will go for Tata Steel. I believe fundamentally Tata Steel looks good at current levels. They have a fantastic business as far as domestic business is concerned. They have some challenges as far as their European operations particularly UK operations are concerned and that needs to be resolved. But even with that, Tata Steel at current levels looks good for a one-year kind of a hold.
On media basket & multiplexes
I will not go to the exhibition or the airlines or even hotel stocks at this stage. It is good that things are opening up gradually but it will take quite some time before they are able to deliver the kind of performance which we have seen from them pre Covid and lockdown. With 50% occupancy or even less, it is a huge challenge. Fixed costs are piling up. Things will take time before they become normal. So I will not rush to buy these stocks at this stage.
In the entertainment and media space, I would go for content providers like Zee Entertainment or Sun at current levels. Economy is picking up, elections are coming up in different states and different geographies and entertainment companies, particularly the news-oriented companies will start doing well.