I wanted to understand the infrastructure area. Given the fact that this is an election year, we again saw a slowdown when talking about how spending on contracts was compared to last year. But what does this mean for the infrastructure space going forward? In fact, should we hold out hope that things will only pick up in the future? Contracts will only start flowing in, so if you haven’t bet on the counter yet, start betting now.
Sandip Sabharwal: Yes, spaces should work fine. The central government’s focus has always been on the industrial production side, rather than trying to revive consumer sentiment, as consumer demand is weak. Most of these companies are doing well. So, as you rightly said, the election slowed the flow of orders and affected execution, and that’s not going to happen next year. And again this year, I think the severe heat wave and then the prolonged monsoon affected execution in many of these companies. So it’s hard to predict what next year will be like, but this year was special in that sense. Therefore, the overall outlook is promising in this area.
Just yesterday afternoon, we were talking about this and how you’re relying on FMCG to really make a comeback. I was just looking at the list, and companies like Tata Consumer, for example, are down 15% year-to-date, and Nestlé is down 19%. Of course, Asian paint is a completely different story. We’ll talk about that later. But first, just on FMCG, since you follow this space closely, do you think these stocks will bottom out in 2025?
Sandip Sabharwal: Ideally, we initially hoped that this year itself would be the bottom and demand could pick up in time for the festival season, but that hasn’t happened. As a result, stock prices rose in hopes of a comeback and then corrected. Therefore, year-to-date returns will remain low and negative.
But if you look at the decline from the top for many of these companies, most are down between 25% and 35% from the top. Therefore, typically a 30-35% drop from the peak is an investable level for large FMCG companies, and we have seen that most stocks do not tend to fall significantly from that level. I did.
So I’m going to actively support most of these big consumer companies, including all the names you’ve taken names from.
What do you think about the IT space? And how do you read its earnings despite Accenture raising its guidance? But the concern for these brokerages is that the demand environment is mostly What remains the same is Accenture’s emphasis on deals where it does not currently expect to improve overall spending by clients. So, how do we interpret this and what tips does it give to Indian IT companies?
Sandip Sabharwal: So the increase in numbers and guidance was taken positively, but as you rightly said, order bookings are more or less flat year-on-year, and in that respect, as many analysts are expecting. An increase in demand may not occur. To predict.
In addition, the Federal Reserve has eased its interest rate cuts, and a new administration has been elected to continue its policy of cutting spending to repair the U.S. government’s balance sheet.
So there’s still uncertainty, and most of the IT stocks have been up very strongly. For example, if you look at the larger stocks, they’ve gone up quite a bit, but many have gone up virtually linearly and are trading at their valuations today. This equates to 2-3x historical revenues for some mid-sized companies and is, in my view, unsustainable.
Therefore, I would like to take a cautious stance at this stage and look at next month’s results to consider more carefully whether there is a case for more optimism.
We’d like to know your views and favorites within the pharma industry, as IT and pharma seem to be the ones that have more investor confidence at the moment amid market volatility. So how do you see the overall space playing out and what are the biggest bets here?
Sandip Sabharwal: Pharmaceutical companies continued to perform well, but then went through a phase of consolidation. Some stocks have adjusted, but many have not. I still think valuations for this sector are reasonable. Therefore, I typically stick to large-cap names in the pharmaceutical industry. So we own shares in Sun Pharma.
I used to run Lupine, but I sold it, but the company continues to do well. Dr Reddy’s could reach some interesting price levels. So, overall, the sector should perform decently. Many companies have growth drivers associated with higher profit margins and improved growth prospects.
Again, for many of these companies, the United States is their largest market. So if there are any policy changes that will affect growth, that will have to be seen next year. But apart from that, the sector looks well-positioned.
Among small- and mid-cap stocks, there are many companies that analysts are positive on due to CDMO opportunities. I haven’t tracked them, but there may be an opportunity there as well.
CDMOs wanted to understand these emerging themes, as they are one that has really started to gain a lot of attention in recent months. Apart from that, there is another topic that has been talked about recently. It’s the renewable energy sector, solar, again related to solar. What do you think about this space and do you think the goodwill you’re seeing in the market will actually continue next year?
Sandip Sabharwal: It’s hard to predict, but solar power is in a big bubble. Every company wants to set up a solar panel factory, sell infrastructure, etc. In my view, within two years, there will be a glut in India and it will be difficult to absorb it.
So, if someone wants to play the renewable energy theme, play it through power companies that can sign PPAs, or play it by companies in the transformers, power transmission, and other ancillary equipment segments because there will be significant delays. It would be better. Since solar power generation is the theme, large investments are required, but if we look at competitive advantages, Indian companies have very little competitive advantage over international competition. They only survive thanks to the protection of import duties.
Another thing I wanted to talk about is the whole theme of capital markets. We found that to be very successful this year as well. That is, the returns of Angel One, CDSL, BSE and the ongoing IPO of Dam Capital. Do you think this will continue to be a good bet in the long run as well? Can we continue to roll out more or add new names such as IPOs which are currently happening at any level?
Sandip Sabharwal: Historically, as capital markets have developed, we have seen that many companies with a strong focus on capital markets have performed well in the global market. Now, there can be different competitive dynamics, such as in the case of a pure intermediary company. Margins may be squeezed or new entrants may come in because barriers to entry tend to be low, but in themes like you mentioned, such as CDSL, BSE, themes related to asset management, or As long as you have an asset management company, you could potentially see more long-term growth.
The issue here is one of valuation. This is because at some point valuations may become excessive and then some negative factors may cause a correction, as we saw with the BSE’s sharp decline a few months ago. Instead of buying at very high valuations, you should take advantage of those opportunities to buy.
