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Crude price hike can pause market revival, not reverse it: Hemang Jani

ET Now|
Updated: Sep 17, 2019, 10.41 AM IST
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  • We are positive on IT, FMCG majors and pharma MNCs at this point of time.
  • There is a short-term setback and even global markets have remained calm and stable.
  • Oil prices going up bodes well for Reliance Industries.
Unless there is a case for a sustainable rally in the crude price and if it remains at a higher level for an extended period of time, then we should start getting worried about the economy, says Hemang Jani, Senior Vice President, Sharekhan. Excerpts from an interview with ETNOW.

If I calculate the impact of spike in crude price, then we are in for a shock. Is this the right way of looking at Indian markets that when oil prices go higher, we will underperform and whatever good work bulls have done in last 8-10 days will evaporate completely?
Definitely the timing and the extent of the increase in crude oil price could be a negative blow for our markets. But we have to remember that this is not the first time that we are seeing any geopolitical tensions and the spike in crude oil prices. We have seen much higher levels of crude oil prices sustaining which we have been able to absorb.

Unless there is a case for a sustainable rally in the crude price and if it remains at a higher level for an extended period of time, then we should start getting worried about the economy. Though it needs to be validated, there is a short-term setback and even global markets have remained quite calm and stable. I do not see this as a reason to derail the entire revival that we have seen for our markets. There can be a bit of a pause, but it is not going to reverse the broader positive outlook.

Yesterday we saw that trade play out on oil sensitives. Paints took a knock yesterday and it is a little unfortunate because paints perhaps was the only segment which had delivered good earnings in the quarter gone by. Do you think that trade will also get challenged with the movement in crude now?
Yes, having seen a bit of an up move in that space over the last few days, there could be a bit of a pause but at the end of the day, we have to reckon that we are seeing a global rally which is backed partly by the earnings revival, lower interest rates, etc. Most of the other emerging markets also are showing a bit of a catchup. In such a scenario, I am not looking at a major negative for that particular space at this point of time.

We are seeing a whole host of buy calls coming in on the FMCG majors. Some kind of trend is emerging along those lines. Would you also be looking for an opportunity within that segment of the consumption basket going ahead?
Yes, absolutely. Consumption is a space where we had negative data points for the past few months but now given a much better monsoon, over the next three to six months, one can expect a good amount of growth coming through from the rural side as well as the urban side. I definitely think that companies like Titan or some of the FMCG companies like Britannia or HUL should report fairly decent volume growth. We are extremely positive on that space from an investment perspective.

What about some of the pharma names? We have seen a shift of interest towards that pack given the risk averse trend we had seen in that space over the last few weeks. Within the pharma pack, would it be Dr Reddy’s, Divi's, where you are seeing potential currently?
In pharma, the MNC stocks have seen a far better upside for about a month or so on the back of better growth indications coming in from companies like Glaxo, Pfizer, Abbott and Sanofi. There is a realisation that after a gap of almost about four to five years, some of the products, particularly in the domestic market, has started doing pretty well.

Unfortunately, we do not have any specific coverage on any of these names but from the other basket of stocks, Sun Pharma and Lupin are the ones where there can be a decent amount of upside mainly from a domestic market perspective. Globally, in the US markets, we are not seeing any major revival per se but on the domestic side, some of these companies should do well.

It may sound like a cozy correlation but whenever oil goes higher, rupee goes lower and the IT stocks inch up further.
There is going to be a good amount of traction for the IT stocks, more so, because it is not only oil but domestic economy and earnings growth have not been that great either. Some of the IT companies have delivered a good set of numbers, particularly Infosys and HCL Tech.

Given that we are seeing a good amount of stability in the US markets, typically these IT companies should do well and rupee would give them some additional comfort in terms of margin. So Infosys, HCL Tech and Tech Mahindra (because of the recent deal with AT&T), are the companies where there is valuation comfort and where overall growth would be extremely good. We are extremely positive on IT as a space, at this point of time.

I am working with the assumption that oil is going to be in an uptrend for a long time. How do you see Reliance moving and what could happen to GRMs now?
The oil prices going up bodes well for Reliance because a) on the GRM front, you typically see a bit of spike up and also because the higher export component there is going to be of some additional benefit to them.

It definitely should be good news for Reliance Industries and one thing which we have to bear in mind is if there is any further issue in terms of the entire episode on Aramco and if their overall plans to pick up a stake in Reliance Industries gets delayed for that reason, that could be a bit of a dampener and we have to bear that in mind.

Overall, Reliance looks to be extremely well placed and the newer businesses people have turned positive. Though the numbers are not representative at this point of time, over the next 6 to 12 months, whenever they decide to monetise those two businesses, one would see additional triggers play out. Reliance looks quite attractive at this point of time.

Also Read

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