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Economic Times
3 days ago
- Business
- Economic Times
Anand Shah on why he remains positive on metal pack, manufacturing
Live Events You Might Also Like: Sectoral themes or bottom-up stories? Anand Shah explains the state of the market You Might Also Like: Mihir Vora on where to look for opportunities in the broader market (You can now subscribe to our (You can now subscribe to our ETMarkets WhatsApp channel CIO- PMS & AIF Investments,says global ferrous metal profitability remains muted due to strong Chinese exports, pressuring steel company earnings worldwide. Despite this, there's optimism for margin recovery in select chemicals and metals sectors, driven by attractive valuations and potential earnings growth. While positive on manufacturing, particularly defense and railways, valuations are becoming less profitability in general, especially in the ferrous metals, is still fairly muted globally. We are seeing very strong exports coming out of China which is putting a lot of pressure not only on the profitability of the Chinese steel companies but even the profitability for steel companies globally is under pressure as Chinese demand remains muted. But the production and exports continue to remain whole premise on being overweight on select cyclical sectors is that we believe in pockets of chemicals and pockets of metals, we will see bottoming out of the margin sooner or later and that is when a little bit of pricing power will come back along with a little bit of margin growth along with reasonable topline growth. Valuations remain fairly attractive in these segments of the market relative to the overall market PE multiples. So, a combination of expected recovery in earnings and the reasonable valuations makes us more positive on this sector versus continue to be very bottom up in pharma because there are very different drivers of earnings and growth for each company. The outlook for US generics notwithstanding, the tariff related uncertainty remains little positive. We had a lot of pricing pressure which has eased and that continues to remain fairly favourable for the generic companies in absence of a tariff issue. So, we still remain on the sidelines. We are still watching out to see what is happening on the tariff front and how the US generics is playing out, which is a large component of profitability for most of the pharma have been positive on manufacturing for quite a while now. We saw the bottoming out of the manufacturing margins in 2019, 2020 phase and since then there has been a sharp recovery in profitability but more importantly, pockets of markets like defence and others have actually done extremely well and to that extent the valuations do not remain that attractive today in many of those within manufacturing and again across the market, you will have to be more bottom up. Broadly the market is fairly priced and to that extent, no outsized returns can be expected from the broader market and from here on, for both for creating alpha on the way up as well as protecting the capital in the event of a sharp correction in the market being more bottom up, being more focused on the earnings growth rate at a reasonable price and reasonable valuations are both very important. We continue to focus on those areas, identifying sectors and companies where earnings growth relative to the valuations are attractive of the very big themes for us has been consolidation versus fragmentation. In our bottom-up stock picking, it is very important to see which sectors or which segments of the market where the number of players are reducing. There is a consolidation and to that extent, the pricing power is moving back to the manufacturer or to the service provider and that is where I have spoken about airlines and telecom sector in general that context, the consumer space in general and paints in particular, have had a very high profitability for a very long period of time. We had a fairly stable competitive intensity where four players dominated that market. Since then, given that the valuations were reasonably high for this sector, and the market was ready to value them in greater multiples to their earnings, it has attracted a lot of have seen an influx of quite a few players in that segment of the market, particularly in paints over the last few years and that has brought down the growth not only for individual companies, but also the margins. We are watching that space and seeing if there is an end of competition and we will again start seeing consolidation and moving up. That should help the sector and the companies in those has been consolidating over the last 20 years and at region level it is further consolidated. Having said that, what we all like in the cement sector is that the profits are not very high. The margins relative to historically what they made is not significantly higher and to that extent we believe the cement has room for prices to move up or margins to move up given that the inflation has not been very high in that segment of the market for a very long period of in one pocket, southern India, the margins were far lower than the average and that is where we are again seeing some bit of uptick. Otherwise, across India, we expect consolidation should drive slowly and steadily the profitability to higher levels as demand picks up. Demand will be the key, spending on real estate, spending on housing, spending on infrastructure. Without that, we will not get sustainable improvement in pricing and profitability that changes month on month. The reason is that demand is not as strong as one would want for a sustainable growth and improvement in pricing and the margins for the sector.
Time of India
3 days ago
- Business
- Time of India
Anand Shah on why he remains positive on metal pack, manufacturing
Anand Shah , CIO- PMS & AIF Investments, ICICI Prudential AMC , says global ferrous metal profitability remains muted due to strong Chinese exports, pressuring steel company earnings worldwide. Despite this, there's optimism for margin recovery in select chemicals and metals sectors, driven by attractive valuations and potential earnings growth. While positive on manufacturing, particularly defense and railways, valuations are becoming less appealing. What is your take on the metal pack because that's a sector I believe you are overweight on and that is a globally linked play. What makes you bullish on the metal pack? Anand Shah: Indeed, profitability in general, especially in the ferrous metals, is still fairly muted globally. We are seeing very strong exports coming out of China which is putting a lot of pressure not only on the profitability of the Chinese steel companies but even the profitability for steel companies globally is under pressure as Chinese demand remains muted. But the production and exports continue to remain strong. Explore courses from Top Institutes in Select a Course Category healthcare Digital Marketing Degree MBA PGDM Product Management Others Management Artificial Intelligence Cybersecurity Finance Leadership Operations Management Data Analytics MCA Data Science Public Policy Healthcare Technology others Project Management Data Science CXO Design Thinking Skills you'll gain: Duration: 11 Months IIM Lucknow CERT-IIML Healthcare Management India Starts on undefined Get Details by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like Play War Thunder now for free War Thunder Play Now Undo The whole premise on being overweight on select cyclical sectors is that we believe in pockets of chemicals and pockets of metals, we will see bottoming out of the margin sooner or later and that is when a little bit of pricing power will come back along with a little bit of margin growth along with reasonable topline growth. Valuations remain fairly attractive in these segments of the market relative to the overall market PE multiples. So, a combination of expected recovery in earnings and the reasonable valuations makes us more positive on this sector versus others. Let us shift focus from metals to pharma. The entire tariff overhang from Trump still continues to play on that sector but amid the pharma space, there is healthcare, diagnostics, CDMO. So much is happening within pharma. What is your stance on pharma and is there any sub-theme you are liking at the moment? Anand Shah: We continue to be very bottom up in pharma because there are very different drivers of earnings and growth for each company. The outlook for US generics notwithstanding, the tariff related uncertainty remains little positive. We had a lot of pricing pressure which has eased and that continues to remain fairly favourable for the generic companies in absence of a tariff issue. So, we still remain on the sidelines. We are still watching out to see what is happening on the tariff front and how the US generics is playing out, which is a large component of profitability for most of the pharma companies. I remember that the last time we connected with you back in May, you were quite optimistic on the manufacturing theme and that time you used to like defence and railways as a pack. We have seen a fantastic run-up in these names of late. Do you believe now is the time for these stocks to take a bit of a breather in the short term and the long-term story and the growth trajectory continues? Anand Shah: We have been positive on manufacturing for quite a while now. We saw the bottoming out of the manufacturing margins in 2019, 2020 phase and since then there has been a sharp recovery in profitability but more importantly, pockets of markets like defence and others have actually done extremely well and to that extent the valuations do not remain that attractive today in many of those pockets. Live Events You Might Also Like: Sectoral themes or bottom-up stories? Anand Shah explains the state of the market So, within manufacturing and again across the market, you will have to be more bottom up. Broadly the market is fairly priced and to that extent, no outsized returns can be expected from the broader market and from here on, for both for creating alpha on the way up as well as protecting the capital in the event of a sharp correction in the market being more bottom up, being more focused on the earnings growth rate at a reasonable price and reasonable valuations are both very important. We continue to focus on those areas, identifying sectors and companies where earnings growth relative to the valuations are attractive today. Let us talk about a sector where we have seen a lot of big moves happening. Recently, there has been lots of price competition in the entire paint space. Do you have any weightage on the paint space, if at all? What is your view going ahead and the select stocks you like now? Anand Shah: One of the very big themes for us has been consolidation versus fragmentation. In our bottom-up stock picking, it is very important to see which sectors or which segments of the market where the number of players are reducing. There is a consolidation and to that extent, the pricing power is moving back to the manufacturer or to the service provider and that is where I have spoken about airlines and telecom sector in general before. In that context, the consumer space in general and paints in particular, have had a very high profitability for a very long period of time. We had a fairly stable competitive intensity where four players dominated that market. Since then, given that the valuations were reasonably high for this sector, and the market was ready to value them in greater multiples to their earnings, it has attracted a lot of competition. We have seen an influx of quite a few players in that segment of the market, particularly in paints over the last few years and that has brought down the growth not only for individual companies, but also the margins. We are watching that space and seeing if there is an end of competition and we will again start seeing consolidation and moving up. That should help the sector and the companies in those sectors. You Might Also Like: Mihir Vora on where to look for opportunities in the broader market Does the same theory hold for the cement pack as well because there too we have seen a lot of consolidation, a lot of big players entering and of late, some reports are also highlighting that the pricing power seems to be coming back though on a month-on-month basis that keeps changing. You have been bullish there too. Cement is quite regionally divided. How do you analyse this trend and is any particular pocket looking interesting to you right now? Anand Shah: Cement has been consolidating over the last 20 years and at region level it is further consolidated. Having said that, what we all like in the cement sector is that the profits are not very high. The margins relative to historically what they made is not significantly higher and to that extent we believe the cement has room for prices to move up or margins to move up given that the inflation has not been very high in that segment of the market for a very long period of time. Overall, in one pocket, southern India, the margins were far lower than the average and that is where we are again seeing some bit of uptick. Otherwise, across India, we expect consolidation should drive slowly and steadily the profitability to higher levels as demand picks up. Demand will be the key, spending on real estate, spending on housing, spending on infrastructure. Without that, we will not get sustainable improvement in pricing and profitability that changes month on month. The reason is that demand is not as strong as one would want for a sustainable growth and improvement in pricing and the margins for the sector.
Economic Times
3 days ago
- Business
- Economic Times
Sectoral themes or bottom-up stories? Anand Shah explains the state of the market
Anand Shah, CIO- PMS & AIF Investments, ICICI Prudential AMC, says while banks are currently exhibiting resilience and benign asset quality, they face potential NIM compression due to anticipated interest rate cuts. Credit growth remains uncertain, hampered by weak demand and stagnant wage growth. Revival hinges on export growth or a boost to domestic consumption through fiscal measures to stimulate wage increases and overall economic activity. Shah further says, consumer services exhibit a bottom-up dynamic, contrasting with consolidation in sectors like telecom and airlines. As per capita income rises, spending shifts towards services such as travel, entertainment, telecom, diagnostics, insurance, and financial services, driving resilient demand. While overall growth remains muted, pockets of growth exist within the services sector of the consumption economy, necessitating a bottom-up investment approach. What is your take on the overall markets because of late, the Indian market seems to be consolidating. We are in the thick of earnings and this time there was not much expectation. Other than that, the Indian markets are waiting for the tariff announcement. How are you sensing the pulse of the market right now? Anand Shah: Markets have been consolidating but that is after a very sharp uptick in the markets over the last four months. In that context, a consolidation is not bad news. The market peaked in October and then it corrected very sharply all the way till the February end when almost 80% of the smallcaps were down more than 30% from their all-time high, 60% of midcaps were down more than 30% from their individual 52-week highs and that sort of correction had happened especially in small and midcaps. We have seen a sharp recovery in the market. What is still missing for the market to consistently do well is growth. Growth is a challenge. Topline growth, particularly for individuals, at aggregate level for the economy and for the markets is fairly slow. We are finding some pockets of the market where the earnings growth rate is still strong but otherwise demand and growth is an issue. What are the pockets of resilience because of late, it has become hard to find good sectoral themes. Everybody is looking for bottom-up stories. Is that the case with you as well? Anand Shah: Indeed, even within the sectors there are winners and losers and we can clearly see that. But the point is topline growth is fairly muted in general. So, even when we are looking at the consumption sector, even if you were to look at real estate capex, private capex, government capex, and even exports, everything is fairly soft and to that extent, the top line is challenged at aggregate level more or less for most of the companies. The bottom-up way of going is identifying pockets where there is a scope for margin expansion and scope of consolidation. We have exposure in sectors like telecom and airline which are getting fairly consolidated and on the margin, the pricing power is shifting towards the corporates versus the consumers. Separately, we are looking at metals, chemicals, even to some extent cement, those are the sectors again, while the top line can remain muted, there is a scope for margin improvement as global factors and local factors improve the pricing power and the profitability. It is interesting to note that the tone of the market experts have actually changed quite a bit because just two to three months back, the banking and financials was the consensus buy but it is not the case right now. Why is that so? Given that most of the fund houses still have an overweight stance on financials as do the FIIs, do you believe banking as a pack will continue to be one of those preferred bets? Of late, the shift is turning out to be in some of the other sectors which are yet to make a comeback, maybe consumption, autos, or anything else? Anand Shah: Let me take banking first and then we will come to other sectors. Banking is a fairly large and fairly resilient sector as we see and very clearly corporates are not making mistakes, banks are not making mistakes. To that extent, the asset quality stress is fairly benign at this point of time. Having said that, the banks were beneficiaries of the rate hike. They had NIM expansion when the interest rates were moving up. There is no doubt in my mind that this quarter, next quarter, and maybe one more quarter, we should have some NIM compression for the banks in general as the interest rate starts getting cut. So, to that extent, while banks remain fairly valued on the margin, and relatively better placed than the broader market in terms of valuations, the growth would be a challenge for a couple of quarters to come. Obviously RBI has done enough to push liquidity and if the credit growth rate picks up and I am using the word 'if' because it is not a given that credit growth rate will really pick up because demand continues to remain an issue, the wage growth at aggregate level remains an issue, so neither corporates nor households are ready to lever up and start consuming so that brings me to the next part of that. While the bank remains muted, IT is okay, not fairly priced. We will get reasonable growth in other parts of the economy but wage growth is an issue. If you want auto to pick up, you want consumption to pick up. So what we need is wage growth and that is still missing and it will happen either through exports, the global economy post the tariff issues becoming normalised and growth picks up on the exports front or the domestic consumption gets a boost either through budget or pre-budget. That is what we are looking at. My next question was just on that, the kind of boost that we have seen from the budget towards the entire consumption side, but from your latest fact sheet I understand you are slightly underweight on staples and you have select exposure to some consumer services. Could you help us understand what you are liking from that end of the market? Anand Shah: Yes, as I said before, consumer services is more bottom up. We have seen fairly strong consolidation in sectors like telecom and airlines. Plus, we are still seeing robust growth in the services part of the consumption. So, as the per capita income goes up, at the top end of the per capita income, we will see increased spend in services over products and that is where we are seeing fairly resilient demand for travel, for entertainment, for telecom services, diagnostics, for insurance, and asset management – financial services in general. So, we are seeing some pockets of growth within the consumption in services part of the consumption economy and that is where we have been more bottom up. But as I said, overall growth is muted and we need to go more bottom up than top down.
Time of India
3 days ago
- Business
- Time of India
Sectoral themes or bottom-up stories? Anand Shah explains the state of the market
Anand Shah , CIO- PMS & AIF Investments, ICICI Prudential AMC , says while banks are currently exhibiting resilience and benign asset quality, they face potential NIM compression due to anticipated interest rate cuts. Credit growth remains uncertain, hampered by weak demand and stagnant wage growth. Revival hinges on export growth or a boost to domestic consumption through fiscal measures to stimulate wage increases and overall economic activity. Shah further says, consumer services exhibit a bottom-up dynamic, contrasting with consolidation in sectors like telecom and airlines. As per capita income rises, spending shifts towards services such as travel, entertainment, telecom, diagnostics, insurance, and financial services, driving resilient demand. While overall growth remains muted, pockets of growth exist within the services sector of the consumption economy, necessitating a bottom-up investment approach. What is your take on the overall markets because of late, the Indian market seems to be consolidating. We are in the thick of earnings and this time there was not much expectation. Other than that, the Indian markets are waiting for the tariff announcement. How are you sensing the pulse of the market right now? Anand Shah: Markets have been consolidating but that is after a very sharp uptick in the markets over the last four months. In that context, a consolidation is not bad news. The market peaked in October and then it corrected very sharply all the way till the February end when almost 80% of the smallcaps were down more than 30% from their all-time high, 60% of midcaps were down more than 30% from their individual 52-week highs and that sort of correction had happened especially in small and midcaps. 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What is still missing for the market to consistently do well is growth. Growth is a challenge. Topline growth, particularly for individuals, at aggregate level for the economy and for the markets is fairly slow. We are finding some pockets of the market where the earnings growth rate is still strong but otherwise demand and growth is an issue. What are the pockets of resilience because of late, it has become hard to find good sectoral themes . Everybody is looking for bottom-up stories . Is that the case with you as well? Anand Shah: Indeed, even within the sectors there are winners and losers and we can clearly see that. But the point is topline growth is fairly muted in general. So, even when we are looking at the consumption sector, even if you were to look at real estate capex, private capex, government capex, and even exports, everything is fairly soft and to that extent, the top line is challenged at aggregate level more or less for most of the companies. The bottom-up way of going is identifying pockets where there is a scope for margin expansion and scope of consolidation. We have exposure in sectors like telecom and airline which are getting fairly consolidated and on the margin, the pricing power is shifting towards the corporates versus the consumers. Live Events You Might Also Like: Buy on dips; expect a 1,000-point rally over next 30-45 days: Rahul Sharma Separately, we are looking at metals, chemicals, even to some extent cement, those are the sectors again, while the top line can remain muted, there is a scope for margin improvement as global factors and local factors improve the pricing power and the profitability. It is interesting to note that the tone of the market experts have actually changed quite a bit because just two to three months back, the banking and financials was the consensus buy but it is not the case right now. Why is that so? Given that most of the fund houses still have an overweight stance on financials as do the FIIs, do you believe banking as a pack will continue to be one of those preferred bets? Of late, the shift is turning out to be in some of the other sectors which are yet to make a comeback, maybe consumption, autos, or anything else? Anand Shah: Let me take banking first and then we will come to other sectors. Banking is a fairly large and fairly resilient sector as we see and very clearly corporates are not making mistakes, banks are not making mistakes. To that extent, the asset quality stress is fairly benign at this point of time. Having said that, the banks were beneficiaries of the rate hike. They had NIM expansion when the interest rates were moving up. There is no doubt in my mind that this quarter, next quarter, and maybe one more quarter, we should have some NIM compression for the banks in general as the interest rate starts getting cut. So, to that extent, while banks remain fairly valued on the margin, and relatively better placed than the broader market in terms of valuations, the growth would be a challenge for a couple of quarters to come. Obviously RBI has done enough to push liquidity and if the credit growth rate picks up and I am using the word 'if' because it is not a given that credit growth rate will really pick up because demand continues to remain an issue, the wage growth at aggregate level remains an issue, so neither corporates nor households are ready to lever up and start consuming so that brings me to the next part of that. While the bank remains muted, IT is okay, not fairly priced. We will get reasonable growth in other parts of the economy but wage growth is an issue. You Might Also Like: Earnings growth may be tepid next 2 years but equities to offer better returns than gold: Siddharth Bothra If you want auto to pick up, you want consumption to pick up. So what we need is wage growth and that is still missing and it will happen either through exports, the global economy post the tariff issues becoming normalised and growth picks up on the exports front or the domestic consumption gets a boost either through budget or pre-budget. That is what we are looking at. My next question was just on that, the kind of boost that we have seen from the budget towards the entire consumption side, but from your latest fact sheet I understand you are slightly underweight on staples and you have select exposure to some consumer services. Could you help us understand what you are liking from that end of the market? Anand Shah: Yes, as I said before, consumer services is more bottom up. We have seen fairly strong consolidation in sectors like telecom and airlines. Plus, we are still seeing robust growth in the services part of the consumption. So, as the per capita income goes up, at the top end of the per capita income, we will see increased spend in services over products and that is where we are seeing fairly resilient demand for travel, for entertainment, for telecom services, diagnostics, for insurance, and asset management – financial services in general. So, we are seeing some pockets of growth within the consumption in services part of the consumption economy and that is where we have been more bottom up. But as I said, overall growth is muted and we need to go more bottom up than top down.
