Bullish on infra, specialty chemicals, cement and private banks: Daljeet Singh Kohli
- We are expecting a good breakout move on July 5.
- It is time to look at pharma from now onwards.
- We are waiting for the numbers to play out in auto.
There was a strong move today in the markets. Would you say this is a pre-budget rally? We are just 10 days away really from the Union Budget but we all know that the elbow room is pretty tight for the finance minister.
Today’s move is technical in nature. At some point, you would see some buying emerging. I guess the market has turned very volatile in the last 15 days. Every day for half an hour, it appears as if all the bulls are on the way and over the next half an hour, all the bears are there. So it is very volatile, very difficult to trade. It is good that we do not have to trade. We are happy, we just have to watch it.
We are still maintaining that the market will remain range-bound till the budget unless we see any stimulus package or any kind of announcements which revives economic growth. Problem is that the economy is actually on a downtrend and perhaps now there is an acceptance also on the authority side, that there is a problem and we need to solve this.
The issue is whether they are just going to leave it that point after recognising the issue. Sometimes it is not necessary that you only have to do things where you need to spend a lot of money. You can actually give hints to the market, you can give some policy announcements which may play out over a period of time. Markets take cues from that. Right now, the spirit has to be revived. I think there is a lot which authorities can do. I do not believe that we do not have financial elbow room to do much. We can do many things beyond that also. So, we are expecting something to happen there and if that does not happen, then we will be in very difficult times. We are expecting that on July 5, there would be a good breakout move.
ET Now: What is your take on cement and what within cement, looks like a good buying opportunity now?
Daljeet Singh Kohli: We are quite positive and in fact we have increased our weightages to a couple of cement stocks in the two-three months when the rally had just started and it is giving good returns. We continue to maintain a positive view on the larger ones which have actually PAN India presence and where the EBITDA per tonne is likely to increase much faster than the other peers.
The basic criteria to select the stocks is EBITDA per tonne which will depend upon two things. a) The pricing power or capability of the company to take the price hikes which will again is a factor of the region where they are. We are seeing how they maintained good price hikes in two-three months and some of it has been rolled back. The north again is seeing some pick up there and it is again maintaining good price hike.
So, depending upon these two-three factors we select the stock. We are positive on the sector as a whole also and right now, we are carrying three or four stocks in these sectors in our portfolio.
Given what we are seeing on the move today, and as you do not trade, it is a very short term kind of perspective. On a day like today, you are seeing buying coming in at lower levels or slightly more in the high beta names opposed to other days when markets have just seemed incredibly quiet and cautious on any kind of news flow. Either way, we are stuck in a range. At this point, what would be your call going forward? Would you be looking at cyclicals, consumption? Which are the pockets of the market that you are looking at?
Pockets of the market that are of interest to us is infrastructure. We have actually taken positions in that and we want to increase it there because we feel there is some likelihood of private capex coming in mainly because in last so many years, nothing has happened. Therefore, if there is anything positive in the budget, that will give a big boost and we might see a large number of announcements coming in.
That sector will be of interest to us. We already have the largest infrastructure company in our portfolio. Then the other pocket of interest is speciality chemicals which has some kind of tailwind to it, mainly because of many of the issues with China are beneficial to us. Our companies have developed themselves into those global kind of players who can actually match the requirements of the global buyers.
Earlier people were not looking at India because our companies were very small and lacked credibility. Those issues are now over and in the next 3-4 years, we can build on that.
Our companies in speciality chemicals, agrochemicals can play out very well. Those are the ones which we will continue to back and probably keep on adding. Cement, private sector banks are the other themes that we will continue.
What about pharmaceuticals? Is there merit in looking at any of the pharma names?
Pharma is a very stock-specific story because it is a very heterogeneous sector. Each company is different. They all have different strategies to play regions wise, therapy wise, You have to be very careful about choosing the company.
The FDA issues will always remain because the more these companies try to gain market share in their country, the stricter they would be and compliance will is going to be tougher from here. We should not assume that anyway there is going to be a let up from FDA side.
The only thing they can do is all our companies have to gear up to meet those requirements. Again, it will depend on the promoters and the company background. What kind of importance do they give to compliance issues? As of now we have not added any pharma stock in the portfolio but we are looking at some of them very positively.
Valuation wise, they have become attractive. We need to see how from here onwards, how they build up on incremental sales or the new product pipeline like speciality chemicals. There are a lot of hopes on the speciality pipeline from many of these companies. Let those numbers play out for one or two quarters. It is time to look at pharma from now onwards.
What your outlook on Zee Entertainment?
I will not be able to speak anything on the specific stock because of compliance reasons.
How are you looking at the auto sector? , A lot of issues seem to be plaguing it. Wat is it that you like within the space?
We are waiting for the numbers to play out for maybe one or two more months. The gut feeling is that probably we are coming to an end to this bad phase and probably things will start improving in the next few months. But we will have to see those numbers.
When we talk to some of the distributors, some are very pessimistic whereas some others are still hopeful and they feel that probably there is too much negativity going on but things are not as bad as what is being made out.