Some staple stories better than discretionary part of consumption: Pankaj Murarka
Sometimes towards the second half of this year, we will see pre buying emerge across passenger and commercial vehicles, said Pankaj Murarka, Founder, Renaissance Investment Managers, in an interview with ETNOW.
Just looking at Dewan Housing and the kind of news flow that one has seen with regards to the counter, should investors stay out of it until the entire payment has been made?
Yes. I do not have much view on the stock but this news flow is quite volatile and so investors would be better advised to stay away for a while, get a clear sense of the fundamentals of the company and then take a call which is much more informed.
NBFCs are once again looking jittery, concerns building up. We had all the news around DHFL late last week and that is keeping the markets a little nervous. On the other hand we have got a new circular from the RBI. How are you viewing the recent developments? Would you be buying into the PSUs or NBFCs? Which are the select names you would be looking at currently?
The NBFC sector is in the middle of a perfect storm, the confluence of events that has happened over the last six, eight months has really hurt the sector significantly. It started all with the IL&FS fiasco and then we have seen loss of confidence by the market in some of the other NBFCs or housing finance companies. Because these companies have not been able to raise funding from the market, they have seen their liquidity position or they have been squeezed for liquidity significantly.
The view on that whole NBFC, housing finance space remains cautious. Having said that, we still think that the market will now make a distinction between the men and boys in the sector and we are willing to look at the sector and at high quality franchise within that space from a more medium to longer term perspective, though we are still waiting on the sidelines before we go out and invest there.
As far as the banks are concerned, the last circular that we saw from Reserve Bank late Friday evening is now the revised version of the earlier circular which was struck down by the Supreme Court. The process of dealing with an account when it defaults is now clearly articulated in the circular and it lays down a clear cut process which banks need to follow in terms of either restructuring the account or referring the account to the bankruptcy court.
That is pretty good because that brings clarity in terms of the direction that banks need to take. We have been positively biased on some of the large corporate banks because at the bottom of the credit cycle, books have been significantly cleaned and probably going into this year, their provisioning cost or the credit cost will decline very significantly and they will revert to more normalised profit.
The larger banks, which because of stronger franchise and the fact they are coming from a pretty low base, will see a sharp jump in their profits going into this year and next, are our preferred bets.
Would you buy into autos just yet or is the sector still to be avoided?
As you rightly said, the demand has been pretty weak. We ourselves have been surprised by the demand slowdown that is playing out. Clearly, it is much sharper than what one would have thought.
From our perspective, we are still looking at the sector very closely and we just want to wait for a normalised monsoon and get a feedback on that before we buy into some of these names because in case the monsoons are not good, then it can have again a second round of effect on the demand for a lot of these companies.
What happens then to some of the auto ancillaries, tyre stocks, the other end of the market because there are now fairly dire slowdown concerns? Can we see a turnaround even in two quarters?
I think so. This is a year of challenge for the auto sector as a whole because going into early next year, we move to BS-VI and probably sometimes towards the second half of this year, we will see pre buying emerge across passenger and commercial vehicles.
We will probably have some slowdown in the April to June quarter next year because prices will go up by 5-7% on most of the vehicles next year. The next 12 months will be a bit turbulent for the sector but for someone who is willing to take a more medium-term view, the growth outlook for the sector remains good, penetration levels still very low and this would be a good time to invest into some of these stocks or good business with a three-year outlook.
When it comes to FMCG, I am just going to throw Titan into that basket as well, we have seen some of the heavyweights like an HUL, ITC, in particular outperform in the last few days or sessions, Titan has been trading at those record highs. Would you say it is a good time to get into some of these stocks?
We are seeing very divergent trends when it comes to the consumption sector as a whole. There are pockets of consumption which are still holding out but at the same time there are pockets of consumption where growth has slowed down very significantly. It boils down to specific segments and sectors at this point of time and also some of these consumer companies are trading at valuations which are like two standard deviation or three standard deviation above their long-term averages which means effectively they are very rich in terms of valuations.
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