What a day? Both the Nifty and the Sensex at an all-time high once again or fresh all-time high I should say, at least for the Nifty and lot of stocks actually contributing today. But would you say that you would be a little circumspect about this rally because a lot depends on what the US chooses to do in terms of interest rates and it seems like a 25 bps cut could well be in the prize?
Pawan Parakh: So, honestly, this kind of rally does not really surprise because if we look at the India story, India is doing the right things in terms of investing in manufacturing, focus on renewables, focus on new technologies, electronics and manufacturing and things like that. So, directionally, India remains to be a very attractive story.
But honestly speaking, given the kind of rally we have seen and a kind of linear rally that we have seen in the last one year or so, I must say that stock picking has become really-really very tough.
There are several stocks which are not really in your comfort zone and hence we need to pick up stocks on a bottom-up basis and need to cherry-pick ideas wherein the risk-reward is favourable. Otherwise, it is a tough market as far as stock selection is concerned. Do you believe that now banks also will perhaps play catch up if this move in the markets is durable enough?
Pawan Parakh: Well, I am not so very positive on banks for now because I think banks still have to see a credit cycle. Post COVID, the credit costs have remained very benign. I think that we are in a period wherein credit costs are still getting normalised. And add to that, we all know there is this mismatch between deposits and advances.
While valuations are very comfortable, I think, given that if deposits do not come up the way it is expected, this could pull down growth and at the same time, if trade costs start inching up, we have seen in last quarter where one or two microfinance institutions or one or two small finance banks when the performance was not up to the mark, we saw the kind of reactions that happened there.
So, considering that backdrop, I would actually wait for at least one or two quarters to see some stability in performance, some stability in terms of deposits versus growth rebalancing before we actually build up for a position on the financials or lending businesses.
What is the view on pharma because again, very stock specific moves today as well. Granules is down 16%. But on the other hand, you have Aurobindo Pharma doing quite well. Of course, IOL Chemicals, etc, also have moved up quite drastically. Within pharma, what are you looking at and what looks interesting?
Pawan Parakh: That is the nature of pharma sector, one side you would have some adverse observation on one of the factory audits and on the other hand, you could have another company wherein there is some positive which could actually drive the stock up.
I think similar is the case happening in the pharma sector. But having said that, at the macro level we find the sector to be very interesting because we feel that while domestic pharma business is a quasi-FMCG story, intermittently there could be one or two months when the growth is subdued, but take a slightly longer term view I think this is one sector which can again domestic pharma is one space which can continue to compound 8% to 10%.
And add to that the generic story, the US generic story continues to remain very promising. I think last time when we discussed, I highlighted that most of the companies in this space have got blockbuster molecules in the pipeline at least for next two-three years and two-three years is a good period wherein they can refill their pipeline.
So, from a directional perspective, pharma looks very interesting. And I must also tell you that pharma on a relative basis also makes sense because it is defensive by nature. So, if markets were to fall, I would want to believe that pharma would fall lesser than other sectors. So, it makes sense to be overweight on the pharma sector and so are we.
Some of these oil companies were coming under pressure because there was this expectation that perhaps, given the fact, crude has come down to the level of $70 to the barrel, there is a possibility of a retail price cut. How should one approach the OMCs right now?
Pawan Parakh: If you want to take a two-three-year view, I think OMCs provide a good attractive entry point, in my opinion because last two weeks crude has fallen, but even if crude was to bounce back I would want to believe that on the refining side, lot of these omcs will continue to make decent amounts of margins because last three-four years refining capacity globally has not seen much traction and next two-three years, some of these companies will see addition in their refining capacity.
Secondly, I think government over the last three-four years has made amply clear that even if intermittently they would not hike the retail price, but eventually they will make sure that OMCs get compensated for whatever loss they incurred in the absence of increasing retail prices. I think valuations are pretty attractive at this point in time.
And if actually crude prices were to hover here, safe to believe that in the next one or two quarters they will make a lot of money in terms of marketing margins. So, considering earnings are stable, valuations are fine, I would want to believe that one should actually look to nibble into some of these names.