Market consolidating now, poised for upswing in H2: Sachin Shah
, Fund Manager,
Emkay Investment Managers
, says the Indian economy is poised for a significant upswing in the latter half of the fiscal year, coinciding with an earlier festival season starting in September. Stimulus from regulators and supportive global inflation, particularly in oil and metal prices, are expected to boost demand. Domestic businesses are performing well, with leaders excelling and selective capital expenditure showing positive trends.
There is a lot of
sectoral divergence
. Markets are watching both macros and micros and we see a lot of development happening in the tariff front also. Of course, the India-US deal is still under negotiation. How do you see the construct of the market now?
Sachin Shah:
You are right. We are seeing a good amount of consolidation but within the markets, within the sectors we are seeing that there is a decent amount of divergence and more importantly since we are in the midst of an earning season, we are seeing decent kind of results, from the likes of HDFC Bank, ICICI Bank or for that matter even companies like
Eternal
, Paytm, Laurus Labs.
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I am giving names across sectors, across largecaps and midcaps. So, wherever the results have been very decent, markets have rewarded, markets seem to be giving a vote of confidence over there. Wherever there have been some challenges with the results, we are seeing some disappointment; but again over there, we are not seeing a very sharp knee-jerk reaction. We are seeing that investors are probably going to put in more on hold rather than a selloff and basically, we will probably wait out for another couple of quarters because a lot of actions that we have seen at the ground level in terms of whether it was the RBI rate cuts, whether it is the tax breaks, whether it is the liquidity push, lower inflation, should probably start playing out in the next two-three quarters and maybe during the festival season.
So, probably that is the hope. Overall, wherever good results are seen, we are seeing decent traction. Wherever, the results are not so good, probably markets are putting them on hold.
Let us talk about big bold themes for the next six months. What is on your radar? Last time when we spoke, you were bullish on the consumption sector and themes around that. What is your take on the second half of this current financial year?
Sachin Shah:
A lot of factors, as far as macros are concerned, seem to be in favour of the Indian economy to start doing much better, particularly in the second half of this financial year which is during the festival season. In fact, this time, the festival season is going to be a little earlier. So, maybe sometime in September, October, November, we should see a decent amount of demand coming back and clearly it is getting a lot of stimulus from the regulator side, plus the global inflation is also very supportive – be it oil prices or a lot of other ferrous and non-ferrous metal prices.
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All of that should really help as far as the demand pickup is concerned. Even when you see some of the earning season at this point in time, most of the domestic businesses seem to be doing reasonably okay and within that, the leaders are doing even better.
Another very big thing is in terms of selective capex also, when we hear some of the management commentaries in this earning season, that also seems to be under a good trajectory. Overall, we believe that the current earning season is panning out fairly decent and probably the second and third quarters should do even better.
What is your view on the pharma sector in the light of the tariff threats which are there currently? I see a significant part of your exposure is in pharma. How should one navigate this sector? Is it a good bet at the current juncture?
Sachin Shah:
You are right. Basically, all the macros being very positive for the Indian economy, there is just one big overhang, the tariffs. Again, the tariffs relative to the other countries, is something that we need to watch out for. As far as the pharma sector is concerned, we have been fairly constructive on this sector for almost the last two, three, four years or maybe even longer and within that, we have been very strongly positioned as far as the CDMO, the CRAMs (the contract research and manufacturing space) is concerned.
So, whether it is Divi's Lab, or Laurus Lab, we have been owners of these businesses for a while now and we believe that these are businesses which are like have a secular theme for the next three to five years, not only China plus one but even Europe plus one in terms of the outsourcing as a theme and companies, all the companies in these sectors, particularly the leaders have actually established with their customers their right to win in terms of their domain expertise, in terms of the setting up very large capacities. Even currently, the kind of the capex announcements that we are hearing from these companies is really large. Something we have not seen cumulatively for the last five-seven years is what we are going to see in the next two-three years, so that is another very important thing.
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The third very important thing is the kind of comfort that they give to their customers in terms of respecting their intellectual property rights because a lot of these companies work on patented products or some of these NCPs, and that comfort as far as their confidentiality on their IPRs is also very critical.
So that is one space that has long legs, at least for the next three-seven years. We continue to be very positive on that. Tariff on that, I understand, is also a function of the value proposition that these companies bring to their customers. If they have a strong value proposition compared to the other countries or the companies in the other countries, they will find their way out.
What is your view on the automobile sector both from the global front and the eventual impact coming to the domestic market because as you see the tariff implications first 15% was announced for Japan and the latest one is for the European Union, again in particular for the cars itself. Now 15% is very low versus what was anticipated earlier. How do you believe this is helping the automobile space? Do you see some good times for the global automobile makers and then eventual impact coming to India or is it too early to say?
Sachin Shah
: No, we definitely believe that as far as exports are concerned, and auto components are concerned, we have a very large opportunity, very similar to pharma. Our companies have established the right to win. They have relationships with a lot of these customers as they have been supplying them components. They are also supplying large OEs globally. In fact, not only globally, but even in India, there is a very long gestation period as far as the product approvals are concerned and our companies have already surpassed those hurdles. They have the confidence of their global customers in terms of their quality checks, so that is very positive.
Second, another very important thing is in terms of the domestic side because today domestic is still a very large market for our OEs and there we are not seeing very great numbers in the last at least three-four months in this financial year or maybe even the last six months. But there the hope is that with all the measures that both the government and the RBI has taken in the last few months, at the ground level, we should see demand coming back very strongly.
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