Let us start off by discussing your views on IT. What kind of precedent do you think the Accenture numbers have set and what is your pecking order within this space?
IT has been our favourite for some time. Post the pandemic setting in, we saw a very clear trend that technology companies are getting much more traction than what we originally expected in March, April. The reality is this got converted into the body language of the management when they came for Q2 management calls.
All of them were confident, they were talking about growth and they did up their guidance wherever, they came out with guidance. The reality is what is happening in a) digital machine learning, AI piece has been gaining momentum for quite some time and that got a big boost post the pandemic. b)the pandemic also has led to consolidation of vendors at the customer end and that has been benefitting Indian IT companies. c) There is a significant cost savings by the IT companies because of the travel restrictions and other things. A lot of expenses have been cut. All this put together, the IT companies’ performance is improving and in the medium to long term, we believe there is a rerating happening once again for the Indian IT sector.
There will be winners and losers in the sector but a rerating is visible now. As far as the pecking order is concerned, we like HCL Tech. We believe it should get to about 1000 levels soon. We also like Infosys at current levels. Amongst the large IT companies, these two companies can be looked at. Amongst the midcap IT companies, we like Mphasis and Intellect Design.
Pidilite is up 6% today as well. Page Industries has been having a really strong run. that one. Couple of these to start off with.
Both are excellent stocks. Pidilite, of course, is in a different league of its own. There is nothing more to comment about the quality of the product and the management and the segment in which they operate. There are significant opportunities going forward as well as construction picks up and economic activity in general picks up. I do not think I will be comfortable buying into these stocks at these levels. But having said that if somebody is a long term investor, there is absolutely no harm in picking up Pidilite and keeping it in their portfolio for maybe three to five years.
What is it that you are making on Jubilant’s foray into biryani and the big Burger King listing?
A couple of things. As far as Jubilant is concerned, after pizza, biryani is the largest edible in a home delivery segment. It was logical for them. They did foray into some Chinese food and all that but I think biryani is a better bet. Jubilant has a good chance of doing some good work there and garnering volumes as well as margin. But we will have to wait and see how this unfolds. But the strategy is a good one and the market is excited about Jubilant and that is getting reflected in the stock price. I have been cautious on Jubilant at these kind of valuations and I will refrain from recommending or buying Jubilant at current levels. But as a strategy, biryani is probably a right strategy for them.
As far as Burger King is concerned, there was a significant over valuation as soon as the stock got listed and some of it was expected because of the over subscription we saw but I think it got stretched a bit too far and at some stage the realisation dawned that people probably need to book profit and get out of it and that is what happened. What is happening in Burger King is probably the right correction and at some stage I think it will be worth buying once again because as a category, the quick service restaurants (QSR) model will do well in the post Covid world.
I am good as far as the Burger King business model is concerned but not at Rs 160 valuation. I will probably look at this at a valuation of around Rs 100-125.
Among the sectors that have been adversely hit by Covid — aviation, hospitality, multiplexes and media — where are you most convinced of a turnaround story?
These are the sectors which were adversely hit in a big way but the issue is that both in the airline as well as the exhibition space which is the PVR and Inox and SpiceJet and Jet Airways and even Indigo, a lot of good things are happening in the last few months. The domestic load factor has increased. SpiceJet has a lot of positives visible including the use of Boeing Max aircraft and the load is expected to increase even further from here.
International routes are expected to open up in the near future. But the market price has already moved up and I am not comfortable with a buy at these levels.
I will not recommend a buy because very clearly the actual business has to pick up and the market expectation has probably run ahead of the ground realities. The same thing is applicable for PVR as well and so I will be a little cautious.
On the ground, the footfall on the multiplexes have not yet shown signs of significant excitement and so I will wait and watch what happens before I start buying into these stocks. As far as the entire beaten down sector is concerned, if I have to bet, probably I will go and bet on the hospitality industry because that is one space where the prices have not run up that much and where it is looking really overvalued.
If I have to buy, I can go and buy EIH or Indian Hotels as a long term buy. There are a lot of excitements happening there, staycation is picking up big time, weddings have started happening — of course, in a much abbreviated scale — but things have started moving up. What is lacking in this segment is the business travel which has not really picked up but expectations are that within the next one, one and a half months things will start moving in the right direction as far as business travel is concerned. So betting on these stocks will be worthwhile and I have no hesitation in recommending Indian Hotels and EIH at this stage.
How are you placed within a) pharma and then b) Bajaj Finance within the lending segment?
I have always been positive on Bajaj Finance. It is a fantastic company and if one is talking about NBFCs converting into a bank in terms of the RBI working group report, Bajaj Finance is way ahead of every other NBFC in its claim to become a bank. It deserves a rich valuation, whether the current valuation it is quoting at is justified or not, it is very difficult to comment but the fact is if you are a long term investor and you believe in the India growth story, you better have Bajaj Finance in your portfolio.
As far as pharma is concerned, we believe rerating of Indian pharma is happening. The process has started. It is probably a three, four year process whereby we will see Indian pharma moving up to a different league altogether. There are few very big positive tailwinds which Indian pharma is having; one of course is Covid and that will definitely help pharma directly as well as indirectly.
The second is the manufacturing location hunt of multinationals who are moving away from China and India definitely is an interesting location for them. Indian pharma companies have also to an extent cleaned up their act in terms of regulatory compliances. So overall, it is a virtuous cycle for Indian pharma. Now if I have to pick up something in the large cap space, Dr Reddy’s has been an excellent company. It is getting into the index and so there is some excitement.
The other company which deserves some attention is Sun Pharma. It is trying to do the right things. The bad news is behind it and at current levels, Sun Pharma definitely looks attractive. Divi’s is in a different space altogether and the only company you can compare it with is the newly listed Gland Pharma.
But if you compare Divi’s and Gland, both look good at current rates because of the fact that the opportunity there is significant going forward as well. If you are an investor with a one plus year time horizon, you can pick up both Divi’s and Gland Pharma. Both are in the space where they are not competing with the Sun and Ranbaxy or Dr Reddy’s of the world. So yes, you can pick up both these pharma stocks.
If you are looking at some of the smaller names, Natco Pharma stands out and one can look at picking that up as well.
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