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    Metals no longer a hot sector to be in; consumer stocks to do well: Pashupati Advani

    Synopsis

    “All metal companies like steel companies and Hindustan Zinc and Hindalco and all the companies are going to have some pressure on their margins going forward for the next quarter.”

    Pashupati advano-1200ETMarkets.com
    “Union Budget in the following week and everybody is just pulling back and waiting to see where policies are going to be and then take it forward, that is my thought,” says Pashupati Advani, Founder & Chairman, Global Foray.

    Where do you think the market is headed? Is the current fall just on account of the global selloff or structurally are we entering into a consolidation phase?
    There are two things. One, obviously we are responding to global markets and global markets are getting hit a little bit. Even the tech sector is getting hit globally. More importantly, we have had a steady stream of IPOs. Even this year, there has been no let-up. AGS is closing today. Adani Wilmar is opening tomorrow and, of course, the mother of all IPOs LIC is on the calendar for next month. So there is a little bit of wait and watch. Plus we have got the Union Budget in the following week and everybody is just pulling back and waiting to see where policies are going to be and then take it forward, that is my thought.

    In the consumption space, is there anything that warrants a fresh buy or are valuations still a concern?
    There is money coming into the market or getting shifted from sector to sector. The banking sector is obviously seeing some pressure because people feel that the banking sector is not really reporting the NPAs properly and there seems to be some challenge which is slowly coming on the banks from the fintech space. So far, the RBI has kicked the moratoriums down the road and they have not forced banks to show the real position. For every bank, in the last quarter, the NPAs have gone back to 1%, 2%, 3% which is like nothing! That is where the bell will ring and everybody is trying to figure out the real position.

    So where does one make fresh investments in India? One can get out of banks and go into paints, consumers, cement and a little bit in infrastructure. People were getting out of steel because of the numbers coming out of China and therefore there was some lightening up in metals and steel. All in all, there is some sector shifting as well and the challenge is that the FIIs have been slowly selling since November 1. Almost Rs 90,000 crore has gone out of the market since November 1st. We are obviously reacting to it and cannot absorb it. Plus the mega LIC IPO is coming and that is going to put further pressure on the market.

    What about earnings? It seems the third Covid wave is not taking that much of a toll on India Inc as one would have expected in terms of the overall manufacturing and even input cost pressures. It is likely to be passed through and things are likely to improve going forward. How have you read into the earnings that have come out so far?
    The companies which released their earnings first are the ones which got things to be proud of. The reality of the situation is that the metals pack has done well in the last one quarter simply because China had cut back. Now China is announcing that they are starting to export again and China has been a wild card.

    All these metal companies like steel companies and Hindustan Zinc and Hindalco and all the companies are going to have some pressure on their margins going forward for the next quarter. That is no longer a sexy sector to be in. I still think that even though normal consumer goods are trading at high PEs, people moving towards branded goods and are quite happy to pay up and there seems to be price inelasticity.

    Those companies will continue to do well and it is a question of where do you put your money safely and making sure that you are not going to lose your money. So yes, in cement, though things have slowed down a little bit, general infrastructure also is in for a turn and when we see some nibbles in the real estate sector, that will be the beginning of the turnout of the recession. Right now, we have got some sectors which are doing well and some sectors which are not. I do not like the banking sector and that is my own personal bias.

    What about the massive EV push now? We have seen a lot of companies focusing on the EV push and the EV thrust going forward. How are you looking at this working out for the auto space as a whole and are there any preferences within autos?
    One has to look at all the auto ancillaries and see which ones are producing components for EVs as well as regular vehicles. I do not think we are in the market yet when we are ready to throw out our petrol and diesel and vehicles. We have still got another five to ten years left for that. But I think that EVs will start. We do not have proper EV infrastructure. One or two things have to happen. One, batteries have to be improved and that is happening, but the question is whether we are going to get the technology to move it here.

    The second is charging stations and all will come in which I believe. The oil marketing companies have been asked to put in charging stations near their petrol pumps. But cars that run on CNG, see huge lines because there are not enough pumps. So, again we are putting the cart between the horse. Yes we would like to have all EVs but it is not happening in a hurry. I personally think we have got at least a five to seven year run if not longer and we have also got to get EV trucks which I have not yet seen. So let us see.

    The new age companies that got listed last year, have definitely faced pressure. Today Zomato is down 10% in trade, RateGain is sitting with a cut of around 7%, PolicyBazaar was also down with a cut of 3-4% and Paytm we all know has been a wealth destroyer since its listing. What is your take on these new age tech companies for a three to five year period?
    The country has to decide whether these businesses are here to stay. I think the names you mentioned are. You left Nykaa off which is another one which has dipped today as well but the reality is that they have to come into indices. They are all new issues. They have all been recently issued in the last two, three months and so they have not yet come into the indices. The minute they come into the indices, then you will start to see some traction.

    The thing about Paytm is it was priced very aggressively and so the stock is still in hands which are really pained because a lot of people still own it at the issue price and some people are overleveraged. But Paytm is definitely here to stay. They are here in businesses and in areas where you would not expect them to be. At some point, they will be large enough to become an index stock. I can see Zomato and Nykaa and Paytm being definitely in the top 100 stocks. Some may be in the top 50.

    Once that happens, it becomes part of life and then any incremental index fund money comes into it and as you know that kind of money dominates the universe of investing. Those companies which are in indices do a lot better than those that are not so. It is just that you have got a transition between their listing and them getting into the index which takes six months to one year and sometimes longer.

    How are you looking at the overall valuation picture when it comes to the pharma space?
    Pharma was the darling of all of us but they seem to have gone to sleep over the last two to three weeks because people are waiting and they do not know whether vaccine is going to be given again and whether new vaccines are coming. Zydus has brought a set of pills and so there is a whole bunch of movement in that space.

    The other thing is that the rupee has also got a little weaker compared to the dollar which is good for pharma and IT, but it is still not making the pharma stocks jump. It is a bit of a wait and watch and everybody was comfortable being in pharma. It is like comfort food. The big pharma stocks are really comfort stocks. Everyone is comfortable being in a Sun or in Dr Reddy’s or these big pharma companies and then will have a little bit in the next year as well just to have some excitement in pharma. They are quite comfortable being in those stocks being a proxy for India.



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    (What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2024 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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