Post Cipla’s numbers, would your view change on pharma in any way?
Sandip Sabharwal: We are seeing from the pharma sector result that the margin seems to be peaking out and the outperformance which was seen over the last several quarters which led to the stocks doing very well as the sector was as it is under-owned is now getting over. So, the big outperformance which we saw from various pharma company stocks could be getting over now.
What do you make of the market construct right now? What are we headed for until the election outcome?
Sandip Sabharwal: What is happening is that markets have corrected and people are correlating it to what might happen in the election. I do not think that is the right way to do it. I think markets fall under their own weight when they become overweight. So, they became overweight and are correcting a bit. This is happening in the midst of a very strong global construct where we have seen European markets move to new all-time highs, Chinese markets do very well, and there seems to be some shift of money of foreign investors out of India into China and other geographies also because of the outperformance India has done.
This could continue for some more time and that will create an opportunity to buy. I am not so worried about the political construct as such.
How do you keep your portfolio protected from any which way the political wave may move and what is it that you would be shopping for?
Sandip Sabharwal: You have to take a view. If you think that this government is not coming back, then you should go on to 50% cash and hold that cash and invest whenever the market falls because long-term growth of India is a given and it will happen and there will be some derating which will play out and then the markets will recover again but that is not my base case. My base case is continuity and to that extent we would be more near 12% to 15% cash and waiting to buy into stocks and sectors which we think would offer outperformance potential over the next one year so I think that is how I would play it.
Would you dabble at all in the paint segment and given the kind of aberration we have seen with increased and heightened competition because of new players now entering the market, would you say that paints may not be the hottest sector right now to be in?
Sandip Sabharwal: No, I think it is not. I believe most stocks in this sector need to fall 40% to 50% from the top for it to come into buy range because you see, the companies have reported weak numbers even without Grasim having made an entry. This year, we will see aggressive competition start from Grasim Paint and the volume growth as it is, is not so much at this point of time. So, when the growth has slowed down at that time aggressive competition coming in will create further pressure on the margins. I believe most analysts’ expectations are still too aggressive in terms of what earnings they can deliver. So, this sector should be avoided.A quick word on the wires and cables industry. Polycab clearly surprised the Street with that big beat. The stock was 10% high. It has cooled off from the day’s high but RR Kabel, Finolex Cables, a lot of these wires and cables companies and even Havells for that matter. What would be your recommendation on this segment?
Sandip Sabharwal: There clearly is momentum here and there are various companies. Polycab had some issues related to corporate governance. I would tend to avoid this stock, although the reported numbers seem to be good. But at many points of time, their numbers have not matched with what the industry has been doing, so that is all I would say about Polycab. Ex of that, in the wire, cables, switch, gear segment, there seems to be reasonable momentum. That is one segment of the market which seems to be recovering and as such based on valuations most of the companies should do well.
