I’ve changed my stance on new-age companies: Safir Anand

New-age stocks have created quite a buzz in the previous week post their Q3 commentaries. Safir Anand, investor and brand strategist, in a conversation with Moneycontrol, spoke about his changed stance vis-a-vis these companies after their recent performance.

“Initially, I was skeptical about the oversubscribed IPOs and their valuations, but many of these stocks have corrected more than 60-70 percent. My view changed in the past month and I invested in some new-age companies, including Nykaa, which is currently one of the preferred stocks, along with Zomato and Paytm,’’ said Anand.

Anand says he has also invested in sectors such as banking, logistics, defence, transformers, and in select mid- and smallcap stocks.

Although earlier he did not own PSU bank stocks, he has been investing in them for the past three years after seeing the turnaround and the valuations of some of them. Anand is bullish about the defence sector and has been investing in hospital stocks for more than three years. He is not currently invested in largecap IT but in midcap IT.

In healthcare, Safir differentiates between hospitals and pharmaceuticals, calling the former preventive, and the latter curative. He has not been bullish on pharmaceuticals for months now, and believes that hospital stocks will have robust growth, enabled by technology. Below is the edited transcript of the conversation:

Safir, what do you make of the Q3 results? Any particular sectors that have managed to impress you?

I continue to be glued to sectors with longevity. These include sectors such as banking, where I've been invested for some years, logistics, defence. I'm also invested in the transformer sector, and in select midcaps and smallcaps.

The financial space has rallied significantly. PSU banks outperformed in the previous calendar year. This year too looks no different. What do you make of the space? Between PSU and private banks, which do you prefer?

I won't differentiate between PSU and private bank stocks because I own both. But historically, I've not owned PSU banks. In fact, I've been sceptical about them until about three years back, when I saw the turnaround and the valuations of some of them. The first one I bought into was State Bank of India (SBI), fairly early, maybe when it was at about 170-160 levels.

What I do when there’s a correction is that I look at what has fallen within the sector. If the fall appears to be momentary because of market weakness or because of fears of some NPA that may crop up due to Adani or some other factor, then I deploy my money. In fact, most of it is going to PSU banks.

I also want to chat about defence and IT stocks – they've recovered significantly from their lows. How do you view them? Also, are you looking at the healthcare segment?

I'm very bullish on defence. For example, two days before the (aero) expo started in Bangalore, I was looking at the list of participants. It appeared to be quite logical that many of these companies will bag orders. It's very clear that the government is focussed on defence and Make in India, and some of these companies show promise.

For example, an aeronautics firm that typically supplies to the government has now bagged orders from other clients. There is a lot of value migration happening here. Value Migration is the flow of economic and shareholder value away from obsolete business models to newer, more effective ones. You're migrating to a model with a larger reach, and robust demand and margins, and building a stronger brand.

As far as healthcare is concerned, I differentiate between hospitals, which I consider preventive, and pharmaceuticals, which is more curative. I have not been bullish on pharmaceuticals for the past several months. As pharma stocks are tumbling, my thesis is turning out to be right. On the other hand, hospital stocks have been continuously outperforming.

In the last six months, there’s been a lot of international interest in many of these hospital chains. Issues concerning the management, how they’re run, professionalism, etc, will get resolved. And there will be robust growth, aided by technology, because now you don't need a battery of good doctors to be present everywhere, particularly in tier 2, tier 3, towns, since they can be available online. This synergy between technology and hospitals is a very good play and I've been invested in the sector for over three years.

IT stocks have started participating in the global tech rally. What do you make of that? Do you think there is a further upside? What do the valuations look like?

Again, I make a distinction between largecap and midcap IT. I am invested in midcap IT, some of whom are niche players. They cater to specialised segments. I am not currently invested in large IT because while they have gone up since the time I sold them, the increase has been marginal. The big players are dealing with issues such as job cuts and a global slowdown. It is possible that the sector will turn around in a few months and become attractive. But not as of now.

Let's talk about the new-age companies. There’s been a mixed commentary and somewhat unclear guidance regarding them.

Yeah. To begin with, I was very, very sceptical. The kind of oversubscription they were seeing and their valuation didn’t make any sense. Many of them tanked by 60-70 percent, or even more.

But in the last one month or so I changed my stance and in fact bought a few of the new-age companies, including Nykaa. Despite everything, Nykaa Zomato, and Paytm seem to have good potential.

Moving on to rates. Do you think NBFCs can catch up now?

The entire financial sector looks euphoric. Therefore, everything in finance, even IT firms that cater to finance, may do well to some extent.

When we look at the markets we see that in the last several years XYZ sectors have not performed, but we know that the market always reverts to its mean. Sectors like telecom and infra have turned around. Railways is doing exceptionally well. All these are dependent on finance in one way or another, and not just consumer finance. Actually consumer finance is looking weaker, as opposed to capital-related finance.

How about infra? It's a pre-election year. Do you see a significant number of contracts coming through? Even if the order book looks good, do you think there’ll be significant improvement in the performance of these companies?

The issue that has plagued infrastructure in the past is that they've been very dependent on government contracts, and when the government changes they face issues like cancellations, payment delays, etc. But with the current government there is a very clear focus infrastructure.

Many of them are not falling into the traditional trap of bidding at the lowest rate just to fill up their order books. Some are even avoiding projects if they find that the returns may not be remunerative. It could possibly be the start of a positive infra cycle, both in terms of earnings and also the trajectory of the returns that you may get from them.

Between infra and defence, what looks more attractive at this point of time?

Defence is also infra in a sense, because you're spending on the country's security, and for that, you'll also be building the required infrastructure. But between the two, defence appears more attractive because it can be exported.

Also, you may replace international players with domestic ones, who seem to be scaling up. Look at the shipbuilding industry, for instance. It can cater to the Indian navy as well as the merchant navy. Some of these look quite promising from an investment perspective.

What’s your take on logistics stocks? Warehouse rentals have seen a sharp surge, and over the previous week, we've seen significant traction in these stocks.

Yeah, but also look at hotels. Hotel rates surged and we yet kept booking more rooms. Airline rates surged due to an increase in input costs, yet more and more people were booking flights. It was so difficult to get cheap seats.

The country's commerce cannot go on without logistics and warehousing. You can't send goods across the country without transportation.
The logistics leaders are talking about huge capex. They are well versed with the cycle. They're investing in technology. Some of them are buying new planes, etc. The pulse of this sector appears to be very strong and in the right direction.

Since we've spoken of hotels, let's touch upon multiplexes. Do you see a recovery in that space?

I own only one multiplex stock and that is not PVR. The reason I bought it is because the promoters of that particular company have a solid track record. They sold their earlier business to PVR, finished a non-compete, and have come back, and are scaling up. They are opening more and more theatres, and pose strong competition to PVR.

The reason I don't own PVR or Inox at this point of time is because while a few films like Pathan do well, many more fail. If there were more hits, then I would move to multiplexes. Right now it appears that more money is being spent by people on travel and live events and concerts and all those kinds of things.