How should you position yourself in IT and pharma now? Neeraj Dewan answers
ADVERTISEMENT After the TCS as well as HCL Technologies Q1 results, it seems like IT will need to be avoided this quarter too?
Neeraj Dewan: Yes, definitely the beginning of the result season has not been good for IT. It was on expected lines because we are not expecting good results from IT this quarter and even the immediate outlook is not that clear. So, one should wait to get more clarity; one, what is going to happen on the earnings front and second, what clues we have from the US regarding business going ahead.
So, one should really wait and see how it goes. As far as largecap IT is concerned, if TCS, Infosys consolidate in this region and stop correcting, maybe it is not a good idea to sell them at this point. One should hold on to them to get more clarity or start accumulating.
A lot of things are happening in the pharma space. There is some stock specific action from Zydus Life, positive news flow coming in for Zydus as well as Biocon for their diabetes drug Kirsty. Other than that, there is some commentary coming in from Trump where he is saying that pharma tariffs could be announced by the end of this month. What is your take on the sector? How should investors position themselves in this sector?
Neeraj Dewan: As far as the tariffs are concerned, there are two things. One, Trump has been speaking about pharma tariffs for quite some time. Off and on, he comes out with statements but the market has not reacted too much and stocks have been doing well. Second, there are these country specific deals. There is still no clarity if India will have a country-specific deal. If there will be separate tariffs for all industries, then what is the idea of having a country specific deal?There is a lot of confusion over tariffs as of now. So, I do not think stocks will react too much. For an investor, it would be best to just invest in the stocks we like and stay invested in them as far as pharma is concerned. Pharma has been a stock specific bet and one cannot really invest across because now the stocks are not that cheap. They are quite fairly valued. We will get pockets there. We will get stocks which are doing very well and stock specific moves will come. So, you should stay invested in the ones you are betting on and then see how it goes as far as the tariffs are concerned.
Is there merit in looking at the two-wheeler space right now? Yesterday, the entire pack was fairly charged up. We have seen an early onset of monsoon as well. The distribution so far as well pretty much seems to be on course. Is that going to reflect in the two-wheeler numbers?
Neeraj Dewan: Yes, I think so because bigger companies like Hero Motors and Bajaj Auto have come out with some statements. They are going to be aggressive and they are looking at growth going ahead. We have seen that if we have a good monsoon, there is definitely a pickup in demand in the two-wheeler space. Going ahead, since inflation is low, there is excess liquidity in the system, and we are having a good monsoon as well, it will all augur well for the sector.
ADVERTISEMENT Hero Motor is trading at discount to its long-term averages. At this price, getting into Hero Motor should make sense for a long-term investor. Similarly, in Bajaj Auto, we are yet to see some improvement happening. Let us see the results for this quarter and then we will take a call on Bajaj Auto. Hero Motor definitely as they are quoting 20 times historical and Bajaj Auto is at close to 30 times historical; 12 months trailing are showing attractive valuations. One should consider them for long-term investing.
In terms of the stock market, insurance has been a nonstarter barring a few odd moves here and there. How should insurance be looked at? It may be a structural story but the stocks have not performed at all.
Neeraj Dewan: You are right, it is a structural story where five-six years back, everyone believed it would be a good value generator. But everyone got invested also. You see long-term portfolios, they are holding on to some good insurance stock. The funds have been holding on to them. But that follow-up big buying is not coming because there is no exceptional gain which comes specifically from life insurance companies.
ADVERTISEMENT Life insurance companies have been a drag and going ahead, we are looking at 10-12% return. We can still get that kind of return in this sector. But general insurance is one where there is still good scope. There can be growth there and we have seen those companies doing better also. So, if I have to pick one of the two, I will pick general insurance.
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