We believe investors should be selective with IT and pharma sector. And in the pharma space, we are more constructive on Divi’s Laboratories, Dr. Reddy and Biocon, Vipin Khare, Director- Research, William O'Neil India, said in an interview with Moneycontrol’s Kshitij Anand.
Q) Do you think that the recent bounce was largely on the back of rupee appreciation and fall in crude oil prices and the rally is short-lived?
A) Over the last three weeks, the Indian market has been resilient. Private banks supported the Nifty Bank after PSUs took a breather and ended flat for the week ended November 22.
So far, we have seen good action in Eicher Motors, ICICI Bank and Havells India. Currently, the Nifty is trading about 1 percent below its 200-DMA and we will get a strong conviction about the current rally once it crosses that level.
The recent weakness in the US and European markets has led to some corrosion in the Nifty and the Sensex as well. We believe it is important for the Nifty to retake its key support levels, failing which we could see more downside in key indices.
Q) After selling assets close to Rs 40,000 crore in October, FIIs have turned net buyers in November. Do you think that foreign investors are back?
A) For the most part of the year, FIIs have been net sellers. With the rupee stabilising versus the dollar, foreign flows have turned positive in the last few weeks.
However, with weakness in the global markets and uncertainties of state elections, we expect net inflows for the current year to be substantially lower than last year.
Q) Given sudden appreciation in rupee, do you think it is time to re-look at IT and pharma? Most of the stocks are already trading either above or around fair valuations...
A) We believe investors should be selective with IT and Pharma. We are more constructive on pharma stocks as of now. Divis Lab, Dr. Reddy, and Biocon look good to us.
Q) Top five stocks which you consider are a good buy at current levels after the recent fall from highs for a holding period of 1-2 years?
A) ICICI Lombard, Divis Lab, Vinati Organics, VIP and Havells look good to us. We would also keep a close watch on L&T, Axis Bank and ICICI.
ICICI Lombard General Insurance is the country's leading private sector general insurance company with a market share of 16.8 percent in that space. Overall, it is the fourth-largest player and held a market share of 8.2 percent as of March.
Few regulatory factors such as increasing FDI limit to 49 percent from 26 percent and mandatory cover of third-party motor insurance to three years for four-wheelers and to five years for two-wheelers bodes well for the industry.
In addition, the Company is investing heavily in emerging technologies such as artificial intelligence, automation, and machine learning to remove human intervention in the distribution of products and service claims, which helped the Company increase its market share in travel insurance to 24.9 percent in FY 2018 from 20.8 percent in FY 2017.
In the engineering segment, it went up to 11.2 percent from 9.8 percent, while fire insurance rose to 8.5 percent from 7.5 percent. The marine insurance increased to 12.7 percent from 11.7 percent.
Divis Laboratories is a global manufacturer of active pharmaceutical ingredients and intermediates for generic drugs. The Company operates through four manufacturing facilities at two sites and earns nearly 87 percent of its revenue from exports.
The Company reported a strong set of numbers in Q2. Revenue from operations grew 44 percent on a year-on-year (YoY) to Rs 12,850 crore, beating consensus.
The net profit (PAT) was at Rs 3,970 crore (+92% YoY), comfortably ahead of expectations. The strong results were driven by normalization of operations at the manufacturing sites after obtaining U.S. FDA clearance.
With increasing opportunities in its generic business following the supply disruption in China, the Company announced capex of Rs 1,200 crore for two Brownfield projects at its two manufacturing units.
Both the units will get an investment of Rs 600 crore each. An additional Rs 300 crore will be allotted to debottlenecking programs for capacity expansions of existing projects. The projects are expected to be completed by the end of 2019.
Vinati Organics Ltd. is engaged in the manufacturing of organic and inorganic chemical compounds and speciality organic intermediaries such as isobutyl benzene (IBB), ATBS, and isobutyl benzene, among others.
In its Q2, earnings jumped 124 percent and revenues were up 57 percent on a YoY basis. The performance was aided by production expansion and improved EBITDA margins.
EBITDA margins were 37.7 percent for the quarter, as against 28.6 percent for the corresponding quarter in the previous year.
After the only other credible ATBS manufacturer announced its exit, the Company is at set to enjoy higher margins with the weaker bargaining power of buyers and almost no threat of new entrants.
This has translated into an elevated EBITDA margin of 37.7 percent compared with 28.6 percent in the same quarter the previous year and five-year average margin of 27.7 percent.
VIP Industries manufactures a wide range of hard and soft-sided luggage under brands such as VIP, Skybags, Alfa, Aristocrat, Carlton, and Caprese. In India's organized luggage market, the Company enjoys more than 50 percent share.
Growth in the aviation industry is an important factor that drives the luggage industry's performance. Domestic passenger traffic expanded at a CAGR of 13 percent during FY 2013-2017.
In June, India's domestic passenger traffic grew 18.4 percent YoY, while it rose 17.3 percent in 2017.
In addition, the introduction of GST and its reduction to 18 percent from 28 percent augurs well for organized luggage makers as it reduces the price gap between the organized and unorganized segments.
With a market share of more than 50 percent, VIP Industries is well-positioned to benefit from a level-playing field post-GST.
Havells India is involved in the manufacture of electrical and electronics durables in the consumer as well as industrial segments.
Its top-line grew more than 20 percent for the seventh quarter in a row as a result of market share gains in fans, water heaters, and other small appliances, and first-mover advantage in the Internet of things (IoT) enabled devices.
In addition, strong innovation and continuous launches in different categories are expected to continue expanding its market share in fans, grooming appliances, and brown goods (iron, toasters, mixers, and grinders, etc.).
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol are his own, and not that of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.
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