Pharma, FMCG, infra: Which sector is worth a second glance?

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Pharma, FMCG, infra: Which sector is worth a second glance?

Sandeep Rajani, Head - Equity Research at Vertex Securities Ltd in an interview with CNBC-TV18 talks about the midcap space and gives his views on select stocks. He also narrows down to sectors like consumption, FMCG, banks, pharmaceuticals and infrastructure and gives his cues on how one should approach these spaces going forward.

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Excerpts from Markets Midday on CNBC-TV18 Watch the full show » ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets Vinati Organics BSE | NSE 01/06/12 Are Mutual Funds betting on Vinati Organics? Other Stocks in this news Ambika Cotton Mills | Marico | Hindustan Unilever |

Sandeep Rajani, Head - Equity Research at Vertex Securities Ltd in an interview with CNBC-TV18 talks about the midcap space and gives his views on select stocks. He also narrows down to sectors like consumption, FMCG, banks, pharmaceuticals and infrastructure and gives his cues on how one should approach these spaces going forward.

Below is a verbatim transcript of his interview with CNBC-TV18's Latha Venkatesh and Anuj Singhal. For the complete interview watch the accompanying video.

Q: We had a pretty bad May series after which we saw some sort of stability in the June series. What we are now seeing is some sort of midcap outperformance. Do you see that trend continuing where Nifty remains flat and we would see a big outperformance for midcaps?

A: Yes, more or less in the interim we will see that. We at Vertex feel that the bottom up approach for the next six months will be the right way to play out the markets.

Q: What stocks are you looking at in the midcap space? Sectorally, is there a preference for any sector or are these very much individual stories?

A: Its individual stories, nonetheless, we have a preference for consumption stocks and FMCG stocks. We quite like the results which came out; Hindustan Unilever which is from the large cap has done well. Britannia has shown some strong numbers though the PE may not justify investment as of now but any correction in raw material prices that is commodity prices may see a re-rating in these kinds of stocks.

Coming to the midcap and the smallcap segment, you could look at the results of Vinati Organics , Ambika Cotton and Marico . These are very surprising and good results.

Q: Anything else that stands out maybe from infrastructure or banking in the midcap space where you would advice investment?

A: Banking, frankly speaking was a bit of a surprise on the negative side. Leaving aside SBI, credit growth is an issue. We would like to see some kind of clarity on the credit growth picture before we take a call. Private sector banks still look good but credit growth figure is what we are looking at very intently before we give out calls.

Q: So there is none of the odd DCB or Yes Bank or some of the stocks which were once troubled and are now coming out, anything in that space that attracts you at this point?

A: Not as of now. We will take a call say in the next quarter.

Q: Infrastructure has been quite clearly a promise that has not been kept and some disappointments even in the smaller companies. Anything in that space where you think the worst is over?

A: The worst seems to be over. The infrastructure valuation has got a lot of correlation with the policy incentives, the policy directives and the momentum in the policy. One was expecting some kind of a pick-up after the state election results. That sentiment has taken a bit of a hit. The results are neither too good nor too bad. Going forward, if the policy initiatives gather momentum, we will see some good re-rating there.

Q: Take us through the story of Ambika Cotton Mills?

A: It's a one off kind of a story. You cannot club it with the rest of the spinning stocks because it's a unique proposition. If you look at the earnings profile of the last four quarters, including the last quarter, you will get a fair feeling as to where the company is headed.

There was quite a bit of disturbance in the sector in the last two-three weeks but this company has not been affected. It has positioned itself very well in terms of the kind of markets it's going to address and the kind of end product that it has being supplying. This is not a company which is going to be affected by the interim disturbances in the sector which is what we like about it.

Q: Pharmaceuticals is the outperforming sector but it is always motley of un-comparables. Is there anything in that space that catches your eye?

A: Pharma normally has played the role of a defensive sector when there is a wilderness in the market and nobody knows what is happening and the sentiment is slightly negative. Taking individual calls there would be a long-term call which we don't have as of now. We will take that in the next six months. Right now we prefer the bottom up approach to individual stocks, not sectoral plays.

Disclosure: Our clients may be holding the stocks that we have discussed.