As lockdown mode could continue and the government's ability to come out with an aggressive bailout package is limited, it's difficult to make out a case for big upside in the short run.
Pharma sector has come out of 3-4 years of base formation. Opportunity is huge both in US and India. Companies by and large are debt-free and reasonably valued across valuation parameters. It would surely be advisable to have an exposure to pharma sector, Hemang Jani, Head - Retail Equity Strategist, Motilal Oswal Financial Services said in an interview to Moneycontrol's Sunil Shankar Matkar.
Q: Do you think it is really possible for the United States to start a fresh tariff war with China given the current health and economic situation globally?
US will play pressure tactics to get a better deal (post COVID-19) with China. It's not clear how much India will benefit and a lot depends upon our ability to provide basic facilities and infra.
Q: Pharma has been an outperformer in the last one-and-half-month given the world's focus towards the sector. Do you think the rally is sustainable going forward?
Pharma sector has come out of 3-4 years of base formation. Opportunity is huge both in US and India. Companies by and large are debt free and reasonably valued across valuation parameters. It would surely be advisable to have exposure to pharma sector in portfolio.
Q: The market made an attempt to move towards 10,000 on the Nifty in April. Do you think it can achieve those levels going forward?
It's difficult to gauge if market can move past Nifty 10,000 levels. As lockdown mode could continue and the government's ability to come out with an aggressive bailout package is limited, it's difficult to make out a case for big upside in the short run.
Q: which five stocks should one to bet on?
Healthcare: It is a defensive play. Though the sector has been under pressure for the last few years, this pandemic opens up a lot of opportunities for the sector. Diversified players (Dr Reddy's Labs). Some unique plays would be API manufacturers (Divis Labs, Ipca Labs, Alkem Labs), Diagnostic labs (Dr Lal PathLabs), medical insurance (ICICI Lombard).
Specialty Chemicals: Increasing trend of de-risking of procurement from China by global chemical leaders. Additionally, depreciation of rupee and sharp correction in crude prices should also benefit (PI Industries, SRF).
Telecom: One sector which has seen rise in usage and continued business operations. With the lockdowns and work from home, usage of phone and data has increased multifold. With consolidation phase over in telecom, we can expect improving tariffs which would support financials in the next 2-3 years (Bharti Airtel and Jio through Reliance Industries).
Select Private Banks: Many private sector banks are well-capitalized and could be looked at post the sharp correction. We believe this is a great buying opportunity from a longer-term horizon as they are quality compounders and would also gain from the consolidation in the market (HDFC Bank, ICICI Bank).
Q: Auto has taken a huge beating given the slowdown in the sector before and now. Do you think one should look at auto now?
With uncertainty in demand due to the effects of COVID-19 along with an impact on the financial health of companies, stock prices are factoring in the potential cut in earnings estimates for FY21.
Considering the discretionary nature of autos, recovery of stocks would be a function of improving demand visibility from the impact of BS6/COVID-19. We expect volume recovery only from September 2021 for 2Ws /PVs, while CVs would be even more back-ended.
Q: Have you seen any change in the behaviour of retail investors in the current COVID-19-led steep fall?
There is a realization across investors that proper allocation across asset classes is critical for stability and growth over a period of time. Market volume is also very strong in the month of March & April 2020 which means the retail participation is on a higher side.
Q: The market has been eagerly waiting for a big stimulus package. Do you think it is possible for the government to announce a big package given the fiscal stress?
It's difficult to make a case for bigger stimulus given the slowdown in the economy and weak collection across revenue streams. Also the fiscal health of government's balance sheet is not good and fiscal is likely to stretch beyond 4 percent.
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