Post results, the IT and pharma stocks have corrected a bit and financials have led this leg of the rally, says Gurmeet Chadha, Co-founder, Complete Circle Consultants.
On Q3 earnings
We have seen the best possible quarterly EPS. The few bright spots for us have been IT, pharma selectively, speciality chemicals and building material led by revival in housing as well as a bit of infrastructure with the home improvement theme playing out. The valuations look a little stretched in pockets and we are seeing some rotation. Post results, the IT and pharma stocks have corrected a bit and financials have led this leg of the rally. You will see some smart rotation happening and there are bits of cash in the portfolio, leaving some powder dry to take care of opportunities that will come. It broadly remains a buy-on-dips market.
On commodity price rise & margin pressure on cos
There will be a bit of margin pressure because of the volatility in prices. One script we do like and keep in the radar is NMDC. The results were very good, led by both better realisations and reduced costs, taking into account the global iron ore prices being largely stable. The value addition due to the demerger of the steel plant is still very reasonable in the entire space. It has a single digit PE multiple and has a very stable client base including Arcelor and others. There was some concern when JSTL acquired Dolvi. NMDC looks good in that space to us considering the valuations.
On diversification of the Tatas into e-grocery space
It is very encouraging. Starting from the startup and venture capitalists, the big boys are also betting big on e-commerce now. There is Tatas eyeing Big Basket. There is
with Reliance Retail foray and we have seen slew of others as well. Tata Consumer, despite the run up in the prices, looks very interesting to me from a very long-term perspective. It is a perfect play on home consumption which is salt, coffee, beverages, tea which is the bread and butter and out of home consumption with NourishCo, Starbucks with the Tata Group foraying into the e-grocery retailers. So, modern trade will become a significant part of the overall trade pie as we go forward and any integration on the digital front would be a huge value add. There will be cash burn and the unit economics will come into play rather than traditional EPS and valuation metric. We need to evaluate these moves and steps very differently from the trademark valuation metrics we are used to.
Could the PLI scheme prove to be a game-changer in the telecom sector?
It already has been and that is reflected in the prices of telecom equipment and network gear makers as well as the electronic makers. See how Dixon, Amber etc have done. The PLI scheme has probably boosted the manufacturing ecosystem. The targets are ambitious but look achievable. My view is that a lot of that is in the price. One thing which is not in the price is pure mobile telecom operators. A tariff hike is imminent considering the March auction. despite the recovery from the sub 400 levels, still looks attractive to me with the best ARPU in the industry, with five consecutive months of adding more 4G customers than Jio and now the gap is increasing. That means that even if there is no tariff hike, granularly you will see better ARPUs from Bharti. The home business is doing well and broadband is picking up. Overall, around $ 2 ARPU. A big rerating could happen if there is a demerger and they can do some value unlocking to raise more money. So, I am pretty constructive on it from a long-term perspective.