Weak semi-urban, rural demand a worry; cautious on pharma: Emkay

There are some green shoots visible in urban demand but India’s GDP is heavily dependent on semi-urban and rural demand, where uptick is still awaited, says Sachin Shah, Fund Manager at Emkay Investment Managers.

"Probably in second half of FY17 we will see demand come back from semi-urban and rural segments," he says

Shah sees a pick-up in the pace of execution of infrastructure projects, particularly roads, which in turn will boost demand for cement. Earlier on Tuesday, CNBC-TV18 reported quoting sources, that cement prices in Andhra Pradesh and Telangana have been hiked by Rs 40-50 per bag.

He is positive on the micro-finance sector but believes US Food and Drug Administration-related uncertainties and stretched valuations is an overhang for the pharmaceutical sector. Below is the transcript of Sachin Shah’s interview with Ekta Batra and Anuj Singhal on CNBC-TV18.Ekta: It has been a good pull-back today on account of the core sector growth of around 6.4 percent for the month of March. How have you read all of the macro indicators that we have got? For example, we just heard that cement prices are possibly hiked by around Rs 40-50 per bag. We are possibly going into a normal monsoon as well. What are you reading it in terms of further incremental triggers for the market?A: Clearly, we are seeing some bit of better demand coming for the cement sector particularly in the last 3-4 months. What we have seen is that there has been a good volume numbers across the board, for most of the cement companies, be it south, be it north, be it central region or western region. Of course, very late in the very recent weeks, there has been some bit of slowdown because of very strong heat across the country, but other than that, the cement demand has been fairly good and which definitely gives a good indication that at least at the ground level in terms of the road projects, things have started picking up quite well. So, that is one big macro indicator that we are following and we are quite upbeat about.Overall, there is some bit of green shoots that we are seeing in terms of the urban demand all across, be it airline traffic, be it the commercial vehicles, be it the passenger car across the board, that is good. The only issue which still remains is the semi-urban, rural demand and even if you hear to some of the management commentary during the returning seasons, there is still not much of change as far as the demand and the semi-urban, the rural area is concerned and the only hope, or rather one of the big hopes over there is that the monsoon will be normal and with that, probably in the second half of this FY17, we will see some demand coming back which in turn will probably help the overall gross domestic product (GDP) to do much better because as you know, that part of the economy plays a big role in overall Indian GDP.Anuj: Since it has been all about individual midcap stocks over the last two weeks or so, what are the fresh investment ideas that you are looking at or the current investment ideas where you want to add more at current levels?A: Since we are in the midst of the earnings season, typically, our policy is that we would look at the earnings of every individual companies and only then take a call. So, among the results that have come and where even positive surprise particularly in the midcap space, one company which has done very well and where the outlook is also quite decent as far as the management commentary is concerned is LIC Housing. This company has delivered good 15 percent loan book growth. Their net interest margin (NIM) spreads have actually been growing. They have been focusing on a profitable growth. They have been talking about it and quarter after quarter for the last many quarters, may be 8-15 quarters now, they have been doing that. And they are still very confident in terms of delivering that as a strategy even for the next financial year. The stock is again trading at very reasonable valuations, at just about 15 odd times March, 2016 and it is growing in the range of 15-20 percent in terms of their profitability which clearly stands out as one of the better companies within the banking and the services space.Second where the results are not yet out, but clearly, if you look at some of the business drivers in terms of the overall financial services, microfinance continues to do well. So, SKS Microfinance where we have already invested and we would like to see that the results over there would also be quite good for fourth quarter. So, these are two companies where we clearly feel that at this point in time, there is some scope.For entire discussion, watch accompanying video...