The market seems to be stuck in a bit of a limbo and FII selling has not subsided at all. RBI played along expected lines and there was a hawkish commentary. I do not think the market was expecting anything different and then also that uptick post policy got sold into?
Indeed you know yesterday RBI’s meet was quite insightful. Now there is a clear indication that the war is going to last for quite some time. The earlier stance of central bankers worldwide was that the war would be a short thing and after that, the fundamentals of economies will take over. Now unfortunately that is not the situation and therefore it has led to sticky inflation with oil at $125 plus.
That leads to a host of emerging market problems. India being an oil importer, there’s pressure on the rupee, there is a lot of input cost pressure and it all translates into lower margins for companies and some of the credit offtake which is expected to happen is likely to be delayed a little bit because companies are going to wait, pause to figure out for a cool off of the economy to normalise before they do any capex plans.
Against this, I think we will be range-bound. The market has thrown up a number of stocks which are at trough valuations of both 2008 and 2013.
What would you look at for the long term in a market like this where we are confined to a tight range? The volumes seem to be on the lower side. Is there anything that you look at?
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The valuations of , United Phosphorous and a number of companies in that space are extremely attractive. They are trading at about 10-12 times. Their outlook continues to remain good and in a good economy or a bad economy, agri, pesticides demands largely remain intact and these companies have also corrected in the last few months. Therefore they seem to be recession proof external-shock proof.
The second is information technology and these stocks have corrected significantly but they have a headwind because every time the Nasdaq corrects, it puts pressure on IT. However, the IT outlook remains extremely strong.
The third is small ticket consumer discretionary stocks. Whether you are buying air conditioners or fans or kitchen appliances, companies like
, look good.
Voltas was an idea from kitchen appliances. But in the other sectors you mentioned, can you tell us about the companies that you like specifically?
PI Industries has a number of products and it has about half a dozen products which are up for commercialisation in the coming quarter or two. In addition to that, they have about 30 odd products in the pipeline which provides extremely strong earnings visibility. It provides margin protection as new products are launched and the earnings growth is going to be north of 18% to 24% over the next two to three years.
The company’s fundamentals in terms of its valuations is extremely attractive and it provides a good 25%-30% or more from the current levels. On the other hand, if one looks at information technology, if one looks at
, or , they are all probably trading at about 17-18 times. The revenue outlook has not changed. So, that is going to grow at about 14-15%. Against that backdrop, the margin correction in that sector has largely happened because of wage inflation and attrition. So, that is largely done and now the margins are unlikely to fall further. They are healthy 23% or 24%. Against this backdrop with demand intact, valuations have been corrected and these are well run excellent companies. I think there is a good 25-30% upside for the frontline information technology companies.
All things are good I guess for liquor companies. ESG or no ESG, some consumption patterns are hard to beat I guess?
Yes indeed. It is time for Patiala pegs in the current market conditions. Having said that, jokes aside, rum and whiskey are the highest consumed liquors in India and against that backdrop,
is well positioned because it has the number one brand in the country and liquor volumes have not been that strong over the last couple of years because of well known reasons. So, with the economy opening up and with new markets opening up the valuations are always on their side, so I think they look good.