Pharma is emerging as a contra value play: Kaustubh Belapurkar, Morningstar
- Increased buying in IT stocks like TCS, Tech M & HCL Tech.
- We are still seeing some marginal buying into Maruti.
- In HFCs, LIC Housing Finance, HDFC are getting flows.
What has changed since the last time we spoke? What is starting to look more attractive?
One thing that has been happening is that despite a positive election result and the SIPs remaining good and steady, the lump sum money and investors have not come back yet. The ammunition for investors or the managers to go and buy stocks is actually limited because the money has not really come in a huge way.
The steady SIP flows happening is great but the lump sum money, that optimism, has not come back yet. We are noticing interesting trends like increased buying into IT stocks like TCS, Tech M and HCL Tech. Another very interesting trend that we have picked up with managers is that pharma is emerging as a contra value play right now.
There is so much underperformance as well in some pharma stocks.
Absolutely. But it is not just one-two names -- Sun, Dr Reddy’s, Cadila -- some of the midcap names are also interesting managers. These are the newer trends that are emerging. Obviously, financial still remains reasonable part of the buying pattern but that is business as usual.
Is auto an absolute no-no as of now? What is the data suggesting?
Autos again is tepid. But what has been happening is that trade-off is still happening. We are still seeing some marginal buying into Maruti and given the price correction, stock managers do not mind picking up a quality name like Maruti but largely autos as well as auto ancillaries have been pretty flat with investors turning very, very selective over what they want to play in that sector.
What about in the broader markets? Is it still looking like a very painful picture there? Would you even go into trying to find some opportunities? What is happening there?
The money that has moved in from the managers has predominantly gone to largecaps. Quality names like the HDFC twins, Kotak Mahindra Bank, some of the corporate names like ICICI and Axis continue to get flows. On the flip side, we have also seen some outflows from some of the stocks that clearly have not gone anywhere like ONGC, Power Grid.
So is it a trend that is emerging there or is it very stock specific?
It is becoming a little stock specific in that sense. But the other interesting trend that we noticed which is probably a very peculiar thing that we have seen is some promoter selloff or strategic selloff like we saw in Emami where the promoter to pay debt actually sold stake and mutual funds did pick that up fair bit. Piramal sold exposure in the Shriram Transport Finance and we have seen funds picking up exposure to some of these names. But I think that is again like I said very stock specific rather than a more broad-based trend.
What about consumption? We continue to talk about slowdown. Is that a space that we are looking at from a slightly longer term view? When could things stabilise?
Consumption is a basket. If I just look at the defensives part of it, given that there is no long-term-ish view, they are building some defensive positions. Likes of HUL, ITC is being added to portfolio on the basis of valuations. It is not a very large position but you can clearly see that is another trend that has added some exposure to that sector.
I see Godrej Properties is on the list and it seems to be a consistent favourite all around. Talk to us about that.
Godrej is largely driven by the QIP that they did. In that space, probably DLF is one of the names that was being picked up earlier but Godrej probably is the other name that sees some interest.
What is the outlook on real estate then? It has been performing well at least at the start of this year but I do not know how things will improve incrementally?
When we speak to the managers, I do not think see a broad-based interest in real estate stocks, saying optimism is nowhere on the horizon. Right now, the interest is very selective. There are some specific names that could potentially be a plays what they look at.
What about banks and financials?
Banks and financials has always remained that blue eyed boy but even there, you can slice and dice. Corporate banks clearly remain the focus and ICICI, Axis continue to get flows. Quality names like HDFC Bank continue to get flows but if you go into some of the mid-tier banks, I do not think we have seen flows coming in at all. In fact, Federal Bank has lost some money, Ratnakar is not really getting too many flows coming in. Yes Bank has seen outflows. The exposure was not large but obviously given the concerns around that, money has moved out. IndusInd is a name where we saw selling in prior quarters, but we have seen some positions being added, given what they are talking about, probably the provisioning is in place now. Things should look better from now on. IndusInd is something where we have seen some buying.
On the HFC space again it is the quality names. LIC Housing Finance, HDFC are the guys getting flows.
Any trend that you are seeing when it comes to pharma? What kind of companies are being picked out?
It is actually a mix. Some domestic names like Ajanta is finding interest but it is very stock specific. There is not one trend that you can draw. But the interesting bit given the way the valuations have come off for a lot of these in terms of the stock prices, is that people are considering value picking in some of these counters.
Are metals a complete no show?
Looks like. Tata Steel was a large sell, given the amount of pain they are suffering on their European part of the business. That is something that we have not seen and so there is a lot of money has moved out from Tata Steel as well.
If you had to sum up in terms of just the mood and the key trends, which was the pick?
I would say the mood is cautious. Obviously flows have also not been that strong and managers are being very selective and not painting everything with a broad brush. Over the long term, we are still optimistic but we need to see a lot more happening on the ground in terms of the results panning out the way managers would want them to and really seeing that growth pickup happens before they can thump the table and say look we are going to aggressively allocate money across sectors. It is going to be a much more sort of selective play right now.