Do you think the government’s plan to restrict sugar exports from June 1 is going to have a huge sentimental impact? It played out yesterday but what is the outlook going forward?
Clearly the government is in a mood to try and curb the inflation and they are doing whatever they can and we have seen that steel is the area where there was aggressive positioning by the government in terms of export duty and they are trying to identify other categories where they can try and put some sort of restrictions in terms of export or duty structure changes.
Definitely in the short run, this would have some impact on the sugar stocks also. Of course, when one looks at the data points in terms of inventory in the production, the situation is not looking that bad because they are trying to put a limit of 10 million tonne on the export front. There will be some sort of stop on pricing and momentum which has built into certain commodities. The entire narrative around the commodity and the emerging story is now getting changed and people are looking out for commodity consumption being a bigger theme.
In that kind of scenario, it is hard to make a case for an upside in some of the commodities including sugar. Yes, ethanol is a bigger theme and eventually it will play out, but in the near term, some sort of top is formed across these commodity plays.
Where do you stand either on the newly listed Delhivery or on and and the fact that they are up 10 to 15 odd percent from their all-time lows. Do they merit a look?
There is some rebound in Zomato and Paytm which is backed by some positive quarterly updates, though in terms of profitability things are not great. Other data points in terms of transactions and the margin part including the steps that Zomato has taken of not putting additional money into newer startups and newer areas, could give some relief and we have seen some pull back.
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So Zomato and other names could see some recovery but in the current market scenario where the sentiment towards the new IPOs and the upcoming companies is not so great, the Delhivery market cap of Rs 38,000-39,000 crore is something that I am not able to comprehend. The reason why we have seen some pull back could be because the retail response to the IPO was muted and when there is lower floating stock, low selling on the day of the listing, sometimes stocks tend to surprise but in terms of fundamentals, I do not think these kind of market caps are justified. The runway for growth is high but the profitability picture is not looking that great.
What is your outlook when it comes to some of these tech or IT stocks? Nomura has downgraded the IT index. They have downgraded , L&T Info, , to brace for a slowdown ahead. Do you concur with that assessment?
Given the way IT stocks have performed in the last two or three months including the top e-commerce companies or even names like Google and whole host of fintech startup companies, does not bode well for the overall IT pack but we need to differentiate and distinguish one aspect and that is that the Indian companies are more of a IT services provider and some of the larger companies in either the products domain or e-commerce or companies like Google. So there is not too much of a correlation and the fact that they have gone down 40-50% from the top, does not mean that the overall tech spend is going to dramatically slow down in the US.
So yes, the appetite in terms of the incremental investment from FIIs has slowed down, but given the overall positioning of the IT services company in India and the fact that the overall picture in terms of growth outlook is still intact and the sharp cut from 6 to 12 months’ perspective, we do think that IT companies are looking quite compelling in the near term as long as the US markets continue to remain weak, more so the tech companies.
You have been talking about how the auto sector along with Bank Nifty is going to take leadership. Within auto, where are you going to see more upside?
After seeing downgrades and underperformance for almost about three years, the auto sector is coming back into the limelight and the recent developments are definitely supporting that upward momentum for the auto sector. And within the auto sector, we like
which is the top of mind company because the business visibility or the volume visibility is still very high and coupled with that, there is some capex and some cooling off in the raw material prices that would really bring far more comfort to that play.
Apart from that, we like Mahindra & Mahindra because a) on the tractor side, we are seeing some positive commentary with better rabi crop and a normal monsoon would have some positive rub off.
The third one that we like is Hero Motors because at this valuation and the price point we do think that there is a merit in looking at Hero Motor given that a large part of the disruption play is behind them and things are looking far more better. So these are the names that we think are very well placed in the auto sector at this point of time.
is looking at increasing their capex in the paint industry. , Berger, – all are expensive stocks. How would the aggressive entry from Grasim change the stack?
It is the first time that a new player is entering into a space where there are two or three large players and there might be some sort of moderation in the expectations because this kind of a larger company entering the fray could take away some market share at some point of time. But we have to see how big the overall market opportunity is and how much time does it take for any other player like Grasim to grab the market share in a big way.
We feel that it has been a two, three player industry for a long time and even if a new player comes in, the overall volume growth opportunity for Asian Paints and some other companies will remain large and given the way they have managed the overall operations and the brand etc we do not see any major issue.
The current issue lies with the market’s unwillingness to pay a high PE given the backdrop that we are in and that has led to a de-rating of some of the companies across the sector. But overall, we are not too negative for the incumbents.
Will Asian Paints now feel the heat because Grasim’s entry could be a Jio moment for the paint industry?
Not sure whether it will be a Jio moment because telecom was just a two to three player market and there has been a large number of players in the paints industry. We have to remember that even if one comes in, it takes at least three to five years to have that distribution network and to take away certain incremental market share. It is a long journey.
So I do not think market has to get to perturbed by the entry per se, we have to just see how the situation pans out over the next couple of years in terms of volume growth and how the management deals with it but we do feel that Asian Paints will continue to be on top of the mind in terms of the way the company has performed. The margins part has faced challenges in the last two yeard in terms of increase in raw material costs but the company has done an excellent job. So, I’m not too worried about the growth possibility. But there is a chance of PE rerating over the next six to 12 months.