If you could just tell us about the resilience that Indian markets have shown compared to the rest of the world. What does this essentially mean despite the sale of FII and where does this put India against the rest of the world in terms of FII valuation and radar?
The most important thing to understand is that, overall, India stands out as a country or economy that is doing well. If you look at any of the major major economies you will find that everyone is in trouble and I am not saying India is currently in trouble but among our peers or among the top 8-10 major economies in the world, India is obviously doing extremely well.
Also, we once again have the opportunity to do much better over the next two to three years because the China plus one theme is definitely playing out on the pitch and we know that a combination of those things helps actually Indian companies and there It is likely that in the next two to three years the market will get much better.
ET Now: How should you play this crafting theme? Is that something the street would focus on from now on?
Abhishek Basumallick: I think so. Look at what is really happening. If you look at the comments from the management of these manufacturing companies and these engineering goods companies, they are coming out with very strong order books. There are a lot of positive feelings. Commodity prices have cooled considerably. Overall, the picture is really beautiful.
“ Back to recommendation stories
So we’ve seen a recent rally when it comes to the capital goods space. Do you think we should look at the capital equipment space and the real estate space after 8-10 years? Do you see a certain amount of numbers coming in there?
Absolutely, and all we saw is probably just the tip of the iceberg. It’s the start of a longer structural movement over the next two to three years, maybe a bit longer. These are the initial periods when the cycle began to turn. We’ve started to see good numbers in many of these industries, whether it’s engineering, capital goods, automotive, and real estate. When some of these cycles turn, they don’t turn for two months, three months, or six months. They spin for a few years, and given that the last five to eight years have been subdued for many of these industries, we’re now going to be entering a situation where the next two years are looking much better.
In terms of manufacturing, what themes would you look at? Whether it’s China plus, capital goods and the infrastructure needed for continued growth to support them? In addition, what is your view of certain export sectors such as IT and pharmaceuticals?
In the field of engineering, we should be interested in stocks or companies that will benefit from large investments. There could be abrasives, gearbox manufacturing, and a lot of those types of games. Besides engineering, I have a personal interest in the pharmaceutical industry. He was subdued for a while. There’s a lot of concern from the USFDA, if you’re able to pick your places in the pharmaceutical industry, the risk reward looks very attractive.
So in the pharmaceutical sector, there are diagnostics, hospitals, US-based companies, India-based companies, emerging market companies, multinationals. What type of companies would you consider in this sector?
Generally, pharmacy is a field where it is very difficult to bring your ideas together. You have to look at individual businesses. A disclosure, we’re not invested in, but I’m looking at Dr. Reddy’s. It looks very interesting. It hasn’t performed very well over the past year, but definitely looks interesting over the next two years.
Basically, look at the large caps, is that what you’re saying?
Look at the large cap ones, look at the ones where you have earnings visibility. You could watch, for example, national plays like JB Chemicals. You have to choose your places in the pharmaceutical industry. Every company is slightly different and it will be very difficult to individualize and say you can buy in general.
We have seen figures coming in on information technology. We have heard the comments. How would you see this space?
I would be very skeptical about buying into IT. There is a significant amount of downside both in terms of earnings and remaining stock prices. There is a slowdown and this slowdown will take effect over the next two quarters. I would be very wary of buying computer companies. I don’t think the correction is done yet.
Why would you say valuations don’t look attractive?
Thus, the valuations of some of these companies have fallen due to the correction in share prices over the past three or four months. But my view is that the United States, which is basically the mother market for IT, is slowing down, there will be a lot of caution in spending and we’re just entering that phase. It will take at least two to three quarters for this impact to occur. We’ll start to see this starting next quarter, as it takes a while for projects to start showing up a bit for clients to put their breaks on current projects or potential projects. This is my expectation. I could be proven wrong, but I wouldn’t go into computing aggressively at this point.
How do you view the current results season? Ex-IT, how would you view some of the names so far?
It is very early in the results. Let more companies pass and then we will have a better idea of the trajectory. But there is going to be some pressure on the margins. In the last quarter, commodity prices were high for a large number of representative sectors of the industry. I expect the margin pressures to be there, slowly diminishing and that’s the good part. In the future, this problem will slowly fade into the background. But it is too early to comment on the outcome of the season right now.
What about banks?
I am personally very positive about the bank. I think the banking sector has either bottomed out or is bottoming out, both fundamentally and in terms of price. The next two to three years or more look very promising for the banking sector, NBFCs and MFIs. I would actually be very positive. If you look at the big banks or conservatively run NBFCs and some select MFIs, the next two to three years could actually be pretty good.
So where would you position yourself? There are big banks, there are PSU banks, small banks that are growing rapidly, NBFCs and MFIs. How do you view some of these sector names within the banking space?
Basically, I would still love because banking is a leveraged business. So the downside risks if things go wrong are very high and it is always better to be a bit conservative and opt for conservative management. Thus, large private banks like ICICI or Axis seem interesting.
Among NBFCs, M&M Financial, Arman Financial seem interesting. Maybe Ujjivan too. These types of players in space seem interesting. One more disclosure, we have
and we have advised it to our clients and we are also actively interested in other stocks.
So basically make a basket and a mix of them including large cap NBFCs and rural plays. Is that what you’re trying to suggest and for the banks, stick to the leaders?
I say if it is possible for you to choose among bank names, you can do so. If you don’t want to go ahead with individual names, you can create a basket and play the theme over the next two to three years.