MARKETS technique: Midcaps, consumption and cement to steer market upside in H2: Pankaj Pandey
Whereas we regularly communicate concerning the IT sector, the beginning of the earnings season was a miss for the bigger IT gamers as their earnings got here in weaker. Nonetheless, we at the moment are seeing a comeback within the IT house. We additionally categorically talked about earlier that one ought to regulate mid-cap IT corporations, as that’s the place conviction will begin to construct. Having mentioned that, within the first half of the 12 months, we noticed a number of challenges coming from the worldwide entrance, and Indian markets needed to digest lots of uncertainties. Transferring into the second half, the earnings season started with a combined bag, nevertheless it was quickly adopted by constructive developments—authorities measures, liquidity assist, financial indicators, and inspiring knowledge factors. What, in response to you, will act because the set off? Do you see a festive temper for the home market and an upsurge over the following 5 months?
Pankaj Pandey: Oh sure, the second half appears fairly good for a lot of sectors. For instance, in cement, whereas Q2 could be tender due to the monsoon, the general sense is that EBITDA per tonne might be maintained. The sector already had an excellent Q1 and is predicted to proceed doing effectively. Equally, in metal, we could not see an enchancment in EBITDA per tonne, however we undoubtedly anticipate stronger quantity progress, which ought to assist.
On the consumption aspect, there are a number of triggers in place. Whether or not it’s FMCG or autos, we’re pinning lots of hopes on the second half for quantity revival. Thus far, volumes have been muted, however we’ve got sufficient triggers—from GST to the eighth Pay Fee, which can come into impact subsequent 12 months, together with tax advantages. In consequence, all the consumption basket appears robust. Even area of interest classes like motels are trying notably good, making them one other sector to observe.
We’re additionally constructive on tier-II beneficiaries of actual property. For instance, within the pipe sector, we anticipate advantages within the second half from channel stock restocking, together with higher quantity progress. Accordingly, corporations like Astral and Supreme look engaging.
Even for banks, whereas Q2 will see most margin stress, from Q3 onwards issues ought to enhance. So, total, the second half appears way more promising, and that’s the reason we imagine Nifty ranges round 27,000 shouldn’t be an enormous problem—apart from export-oriented sectors.
On the insurance coverage performs—we had been simply talking with Niva Bupa—however contemplating corporations like HDFC Life, SBI Life, Star Well being, and Max Monetary, now that GST on insurance coverage premiums is proposed to be zero, do they make good funding instances?
Pankaj Pandey: The second half ought to be higher for insurance coverage performs. Nonetheless, with GST at zero p.c and with out enter tax credit score, there may very well be margin challenges since corporations could must go on some advantages. From that perspective, I’m not very bullish on insurance coverage. What we like extra are AMCs. Inflows have been strong, and with total AUM progress plus inflows, this section can simply ship mid- to high-teen progress from a long-term perspective. Corporations like HDFC AMC and Nippon look fairly engaging to us.
Staying on the GST theme—given the speed rejig that’s underway—what different sectors, other than staples, stand to learn? What about cement and two-wheelers?
Pankaj Pandey: For cement, the GST discount will end in round a ₹25 decline per 50 kg bag, which is clearly constructive. Final 12 months, the sector’s progress was muted at simply 4%, however this 12 months we anticipate extra normalised progress, with most pricing hikes holding up. We just like the cement pack throughout the board—from UltraTech and Ambuja to smaller names like Sagar Cements and JK Lakshmi.
Autos are one other main beneficiary. Whereas two-wheelers are already a penetrated class, four-wheelers are anticipated to do higher. We have now been constructive on M&M, our high choose, however Maruti additionally stands to achieve considerably since vehicles stay aspirational and volumes have been muted. In two-wheelers, we desire Eicher Motors due to its aspirational merchandise, and up to date volumes have been robust. So, each two- and four-wheelers ought to do effectively.
For CVs, I’m not very assured as progress might be difficult, with corporations guiding for mid-single-digit progress. So, we’re much less centered there. However PVs and two-wheelers look a lot stronger after the GST minimize.
What’s your tackle Godrej Properties? How do you see this information impacting the inventory, and what’s your total outlook on the realty pack?
Pankaj Pandey: In actual property, tax cuts and decrease rates of interest will begin benefiting the sector, however this benefit will largely accrue to tier-II and mid-segment gamers. The premium section is already doing effectively, and far of that upside has been factored in. I don’t have a particular view on Godrej Properties, however total, geography-specific challenges exist. For instance, the E-Khata concern in Bangalore or super-premium demand moderating in NCR. So, one must be selective.
We like bigger gamers like DLF, which have a stability between annuity and retail companies. Max Estates is one other identify we like, together with Arvind SmartSpaces. Total, we’re extra constructive on home-building merchandise than on builders themselves. Worth corrections in home-building merchandise have been respectable, and issues are trying up for them—pipe corporations, for instance. So, we’re comparatively extra constructive on the home-building section than on the broader actual property sector.
