Just wanted to understand from you that from the earnings, which sector that you are looking out for because for the upcoming week, we will be having major banks as well as pharma majors will be reporting their numbers like Dr Reddy’s as well as Cipla and I wanted your take specifically on pharma because that particular index did show some resilience in the week gone by and last quarter itself we actually sort of see a bit of a re-rating for these names because the US markets were supportive. There were positive cues coming in as well as the domestic market did flare well. So, this time as well, are you expecting a similar kind of a result announcement from these pharma majors and will you be a buyer of pharma at this point in time?
Well, I think we have to understand that we are in the midst of a global turmoil. As Rajesh also mentioned, that geopolitical stress and tension is creating risk aversion worldwide. On top of it to an extent because of geopolitical stress, the oil prices have moved up, which is definitely not good for Indian capital markets and we have US yields which are at record highs.
Again, this does not augur well for Indian capital markets. So, under these circumstances, we have been seeing a lot of selling pressure coming in Indian markets and FIIs have been continuously selling.
It is just that we have a strong domestic investor sentiment and about $2 billion per month is the incremental SIP which I think to an extent is ensuring that markets are not really crashing.
There is a certain level, buying is coming at lower levels in select counters. Yes, midcap and smallcap are suffering, but in largecap I think selective buying is even now happening on regular intervals.
Now, under these circumstances, when there is a bit of a risk aversion, uncertainty, obviously stocks which are presumed to be defensive. Now, I use the word presumed because I am not sure whether they should be considered defensive.
So, presumed defensive sectors like FMCG, pharma will and are gaining importance and we have been seeing pharma buying happening in select pharma counters.
Also, as you rightly said, US price competition, of course, is still there, but probably there are initial signs of it kind of stabilising and that should be very good news for Indian pharma companies, particularly large Indian pharma companies, which have US as a dominant market.
The other part of pharma which we like particularly is domestic pharma. I think 25% CAGR can be expected for the next few years and under these circumstances, companies which have significant domestic business are definitely going to benefit. So, maybe buying in pharma, selectively buying in pharma, should be the objective of investors who are building long-term portfolios.
We do like companies like Mankind Pharma, which has got almost 95-98% of the business from the domestic market. We do like Torrent Pharma. We do like Laurus Labs, they just came out with the results.
Results, margin improvement has happened on a quarter-on-quarter basis. The top line and others may not be as per what we were expecting, but the margin improvement is definitely a positive sign. So, it has been corrected significantly. So, maybe these are some of the stocks which can be looked at from an investor’s point of view in the pharma sector.
FII has been on a selling spree since August-September. It has seen an outflow of around Rs 30,000 crores. So, even midcap as well as smallcap, they are seeing some pressure, so what is your outlook on the midcap as well as smallcap? Are you seeing some opportunities over there and even the outlook on the FII sell-off?
Well, I think, as far as FIIs are concerned, there is definitely a risk-off mode and that, of course, for valid reasons. US yields are around 5%. There are oil prices going up. Geopolitical tension is really-really immense at this stage. So, obviously, there is risk aversion and as you guys were talking about, gold prices are also going up which is a safe haven. So, under these circumstances, we have seen about $4 billion worth of selling by FIIs over the last couple of months and I think that selling will continue and we cannot run away from the fact that till the time this geopolitical stress and US yields cool off, there will be a pressure from FIIs in terms of selling.
Under these circumstances, there will be opportunities also arising in multiple pockets in India. Fundamentally, nothing has changed in India and fundamentally, as long as oil prices do not remain above $90 per barrel for a considerable period of time, the Indian economy and Indian market should do well apart from short-term pressures and challenges which we are currently having.
So, some midcaps, particularly midcaps where the valuations are still reasonable and there are enough and more growth opportunities should be looked at.
We believe that a few pockets, a few sectors where midcaps can be looked at. One is cement. I think there is a significant margin improvement opportunity because of cooling off in raw material prices.
So, midcap cement companies definitely can be looked at because of improving performance as well as probably forthcoming M&A opportunities.
We know there is major consolidation going on in the industry and that gives a significant opportunity and maybe one-time opportunity in multiple midcap cement companies.
So, those can be looked at. The second sector, which we believe can be looked at is construction, infrastructure and building materials.
Now, this is one sector where there is a lot of action with the election, state election and centre election coming. A lot of public money is also being spent on construction and infrastructure.
Under these circumstances, companies in the pipe, wires, paints, building materials definitely can be looked at.
So, to specifically give some names of the companies we are talking about, I would say, look at Welspun Corp, look at companies like Greenply, look at the cement sector, look at companies like Birla Corp, look at HeidelbergCement. So, I think one has to be selective in picking up shares in the midcap universe, but there are opportunities and definitely those opportunities are worth looking at.