Pharma over-owned, wait for Q2 results: Sabharwal | Economic Times

CV cycle will take a much longer time to recover than what we have seen in two-wheelers and to some extent in four-wheeler cars, says, analyst, asksandipsabharwal.com. Would you say that we are out of the woods?In my view markets are grappling with the fact that there has been a huge run up and that run up has exceeded the revival in economic momentum and disparate global news flows. US elections are now just around 40 days away. We could have a phase of governance vacuum out there. Those are the things which markets are bothered about now. Also, the huge fiscal and monetary stimulus has started to stall globally. Obviously, monetary policies are still very accommodative but in terms of fiscal policy, the governments are now struggling. A lot has been done and it is tough to give more and more fiscal stimulus continuously. It is very tough to make a case for a significant near term upside in the overall market. Overall markets moved up a lot and this interest rate moratorium hearing will also be bought in. I do not think the Supreme Court will do something disruptive. But they decide that interest on interest should be funded, then the government will have to take up that funding which could create a short term cash issue for some of the banks. It all depends on how fast the government funds the banks in case the judgement comes on that side. We have seen a disproportionate correction in some stocks, even the larger ones. So on one side, there is a huge momentum run in some stocks, on the other side, some stocks are available at decent values. I like Bharti Airtel and United Spirits at these prices because they are way off their tops and the future could be much better than what the current prices are indicating. Let us go back to two stocks where we saw price action on Friday. One was Ashok Leyland and the second was GMR. Is momentum driving them? They are deep cyclicals which do well when the economy is flourishing, not when you are confused about what is coming next?The market is getting more and more dominated by a lot of retail traders. A lot of people are working from home who just want to trade in stocks of low value. Whenever there is some news flow around those stocks, then that trading activity picks up and most of the institutions are now absent from stocks like GMR. I would not say Ashok Leyland, but at least in GMR, most of the institutions are absent. The direction of significant retail participation determines the short-term move in these stocks and that is what is happening. Ashok Leyland a two-digit stock among the established large companies. Many participants in F&O or retail investors considered it an inverted bracket safe stock because they see it as a low value stock. But that is not necessarily the right way to look at it. I still believe the CV cycle will take a much longer time to recover than what we have seen in two-wheelers and to some extent in four-wheeler cars, etc, because they are being driven more by personal mobility needs and because public transport was shut down and people are scared of travel by public transport, etc. In case of commercial vehicles, there is a huge surplus even now. The incentive for many of the fleet operators to go and buy more CV is very, very less. Maybe it is driven by some news flow on cabinet notes on scrapping policy, etc, which keeps on coming up every few months and has been going on for the last six-seven years. It has not happened till now. So people need to be cautious. There is no fundamental basis for the move in these stocks. The other big reform or the change is going to be on the agriculture side. If somebody has to call this as a mega trend and participate in it, what would be the best stock idea?Actually there is no real stock you can buy to play this trend because even now, at one end there are a lot of farmers who are dissatisfied with this move and on the other end, it is being called a reformist move. Whether farmers actually end up getting a better price for their produce is something we need to see because if we look at it practically, the MSP regime itself does not work so efficiently as many of the farmers actually sell much below MSP for many of the crops. At this stage, I do not see any stock which directly benefits from this. For those who follow investors and other Twitter handles on social media, ITC is one stock where I am yet to find a bearish view. But despite the consensus that ITC is a stock to buy, the stock refuses to go higher. Why is that? Is it the ESG factor?The main reason is that most people have got frustrated about holding the stock. Wherever there is a momentum in the market, people want to participate in that and where there is value, people, they do not want to participate especially if it has been in the value zone for long. So people do not really know how to value it but then I do not own ITC. I have not bought into it but I would think that where the markets are today and at the current price of Rs 170 taking into account the kind of dividend they pay out. The dividend yield itself is now around 6% and they will continue to generate huge cash flow. It is tough to lose from these prices. I would think it is a favourable risk reward. Although a lot of analysts recommend this, if you actually look at mutual fund portfolios, you do not find ITC among the top 10, top 15 largecap funds today because the investors got frustrated. As and when there is some positive trigger to FMCG business doing well or some recovery, any positive trigger could create a good move. Today at this price. I would be more on the buyer side rather than not buy this stock. Reports are doing the rounds that perhaps BPCL disinvestment is going to be pushed back to the next fiscal. That put a damper in the works for BPCL last week. Does it also challenge the entire investment case around PSU?I have been pointing out for the last many weeks that it will be tough for the government to go for disinvestment in BPCL given the kind of intervention that happened on fuel pricing before and after the lockdown. The private investors are finding it tough to bid and so they do not know what really they are bidding for. Secondly, the overall decline in crude oil prices has hit many of the global oil majors and they are struggling to manage their own costs and to that extent, for them to go and bid a significant amount for a company in India becomes tougher. The news flow could be right and that changes the thesis for the entire OMC basket and it is something which should not be in investor’s horizon for some time. At this stage, this sector and this stock should be avoided and if owned, should be exited. Cipla continues to be in the news and recent news flow has been incredibly positive for the company. Stock was up 5% on Friday itself. What is your view on Cipla?Cipla and the overall pharma basket has become a very over-owned sector with extreme optimism playing out. I would think Cipla at the current prices is more in the fair value zone. We need to see performance coming to support the kind of move which has happened in many of the pharma stocks. I would think there could be a phase of consolidation for a few weeks and then as the results start coming out and we see new commentary, we will be able to take a better call on whether we can get another big leg up or the major move is over. That is how people should take the pharma sector. Building up a huge position in pharma after the kind of move we have seen might not be right.