Now post elections the chatter is what the budget is going to be like, whether there is going to be any mega or big announcement? Is it going to be a status quo kind of budget because the next one is going to be again back in six months?
Our overall sense is that largely the bullish bias which we were carrying prior to election outcome remains intact. The only challenge what probably we need to sort of look at the element of populism which might come by and if the quantum is not so high, then overall directionally things are going to remain intact and sectoral biases and even Nifty target of 25,000 should remain intact. Now, going forward budget and the overall earning growth of 14-15%, which is what we are estimating, I think will sort of drive the market.
But our overall sense is that one needs to sort of watch out for Budget plus the element of optimism. Although they have some head room in terms of higher RBI dividend plus, obviously there can be structural savings on the subsidy side especially related to fertilisers, so it remains to be seen how they sort of utilise. But our overall sense is that with policy continuity in place, bullish bias is intact and all sectoral positioning with respect to capex or infra or related beneficiaries should hold ground. We were closely monitoring what was happening when it came to the entire FMCG space especially post that election verdict initially, but it turned out to be a bit of a flash in the pan move. Do you believe that there is actually merit in looking at this space for the long haul?
This is one space which has done very well when most of the segments of the market were not doing well and our sense is that at best even with better monsoon we might be looking at 9% to 10% kind of lower double digit kind of a growth at max, which means that they are not going to sort of outperform Nifty and on top of it when you look at some of the commentary that most of the companies have been driving the growth through better margins and with local brands competing well, our sense is that there will be pressure on the margins and which is why we feel that this is one space one should not be positioning too much from a portfolio perspective. We are not structurally positive on this space.
The other stock in focus is going to be Mankind Pharma. We just flagged off Motilal Oswal note for you. They have initiated a buy on this one with the target price of 2650, 2225 is where Mankind is currently. I do not know how closely you have been tracking it, but the sheer diversification and the kind of scope of business that they could have in chronic therapies is something that should excite the street and perhaps give a longer growth runway as well to the company.
We do not have a coverage on Mankind, but what we are liking in pharma is something like Aurobindo because Aurobindo last quarter did very well, especially in the US side and when you look at their specialty plus the injectable segment, that contribution is about 24% of their overall US sales and margin profile is expected to be good at 22.5% which is what we are pencilling in and this stock is trading at 13-14 times. So, US growth in general is expected to be better and Aurobindo looks good to us with a target price of 1475.
If we had to look at some of the listed players within this retail space, who do you believe would emerge on top?
Trent obviously is leading the pack with a growth rate which none of the other players are able to deliver. The challenge with Trent is that despite leading the kind of growth what they are delivering, this stock is very well priced.
And while our sense is that probably in the second half we might see some recovery in some of the retail plays, but we still wait and watch situation in most of the companies. Trent being sufficiently valued. We would not be chasing this stock at current levels.
What you are telling your clients now? Clearly the event adjustment is behind us. Is it back to square one? Should market just forget last week’s volatility and move on?
Absolutely, what we are clearly advising client is that we are back to square one in terms of bullish bias and sectorally, the entire capex, infra related themes are back in action. But there is a slight change in terms of, so for example, cement is one space which has not really done too much in terms of price performance, last quarter was soft because for whatever companies we cover the volume growth continues to be good at 13 odd percent, but pricing had been softer, so that led to a softer EBITDA per tonne.
But our sense is that with the kind of announcement which is coming up, we see this is one sector which can continue to or should outperform. And metal is another pack which is interesting. Last five quarters, we have not seen EBITDA per tonne improvement for most of the companies. But our sense is that in case any overall better growth in China ideally should help these companies or any kind of measure which the government takes should help these companies because this is another space where we are seeing a lot of capex happening.
And, in fact, another space which we are liking in bits and pieces, so from that perspective there are select pockets which are looking good. Capital goods, we would want to play more through the bearing companies because that is where we are seeing revival, especially on the export side, so one needs to be selective in the capital goods because given sharp run up what we have seen. Defence is again back with the kind of price correction we have seen. The potential opportunity is quite large and which is why I feel that defence will continue to do well.
