Give me an action where you tell your clients it’s time to sell on every upside. Also a stock where you say I’m not going to do anything or buy down.
Based on key numbers and our fundamental perspective, we believe that consumer space and automotive are the two segments where we are seeing real demand side issues due to the rural downturn and there is no no real relief to revive demand in these two spaces. .
So we would definitely be underweight pure commodities or consumer space and autos. Moreover, for the consumer sector, the additional problem is the rising prices of raw materials or the cost of inputs. So there is pressure on margins as well as demand issues. So that’s the space that we don’t think will perform well for at least the next two or three quarters. We need to look for additional data points.
When it comes to the space we would be extremely positive and comfortable buying in, the priority is IT. The sector corrected by 15%. There are no real demand or growth issues, but it has more to do with how the whole tech space has undergone a correction and flows moving towards the US due to rising interest rates. We would be comfortable buying Infosys, HCL Tech. There is also the takeover of the TCS. We would be comfortable buying those names.
FIIs have shunned IT for finance. They also avoided pharmaceuticals. What’s your call on this pack?
It is clear that pharma has been a big underperformer among the sectors. Quarterly figures from many companies disappointed in terms of margin pressure. The overall pricing environment in the United States is not good and the API segment has its own demand challenges as well as the margin part. It’s time to be a bit more selective about what we engage in in the pharma industry and we’ve been positive on Sun Pharma.
Within the sector, in terms of performance, Sun Pharma stood out as well as Divi’s, even if the stock initially corrected due to concerns over Molnupiravir. But the performance was pretty good and they have a plan to meet multiple products so we don’t really see a challenge. Divi’s and Sun Pharma among the large caps are where we are comfortable buying. In terms of midcap, we’d be comfortable buying into Gland Pharma, which is more of a single injectable type of game. But overall, we have to be a bit more careful and selective about what we get into in the case of pharma.
What explains the recovery of car brands like Eicher, M&M, Tata Motors?
Typically, most investors are underweight autos due to the dual combination of demand issues and rising input prices. So in terms of sector rotation, when IT and banking have had some sort of correction, some of that money as a technical allocation can be shifted to automotive names and that would probably explain some action that we see in names like Eicher and Maruti that have recovered a lot from the lows.
In the automotive space, the big dark horse has been Tata Motors. Although it is a high beta stock and corrects a lot, the price performance across the automotive sector shows that TaMo is emerging as one that could do much better than the whole sector, especially the EV part. They were able to get money for the electric vehicle company and people are excited about the plans to roll out the product. We believe there will be some sort of tactical opportunity here.