So, I would think that the downsides could be limited for many of these companies given the fact that they are zero debt, most of them, and cash flow generating companies with a decent dividend yield, but the upside also is limited given the lack of visibility.
Although some managements are sounding bullish, but then still the macro environment does not warrant that kind of bullishness and we will see greater volatility, like you mentioned about Cyient, we will see greater volatility in the mid-tier companies where specific client issues could impact their performance more significantly than the larger ones.
You said that, yes, there is a lot of global macro uncertainty, how should one actually gaze these sectors now? Should we actually look at the earnings outcome for most of these sectors which are impacted globally namely being it, pharma, auto, some of these chemical names as well which somehow get a positive impact of the China plus one strategy? So, when you are looking at these counters or sectors, how should one actually gauge them, based on earnings or just wait and watch on how the global scenario pans out?Sandip Sabharwal: The global macros become much more important. For example, let us say, you mentioned chemicals. So, for many of the chemical companies also, most of these companies are not fully integrated, so there might be a few, and so to that extent they also depend on China for some inputs coming in and then they process it or develop further molecules and export it, so that is one part of story. So, if the tariffs remain on China, then obviously an opportunity gets created. The second factor we need to consider is that overall, there could be a slowdown and the tariffs imposed on China are only by the US. So, if the US demand falters from any of these Chinese chemical companies, they might start dumping elsewhere. So, it is a very dynamic situation, very tough to evaluate. Things will be much clearer over the next one quarter as to where things are going. But at this stage, I would think that investors should focus more on domestic oriented companies where the domestic macro environment is looking much better with the rate cut cycle and the tax breaks for consumers which start kicking in from the month of April. So, opportunities to be better out there. The global scenario will be much more clearer over the next one quarter.
How are you looking to the Reliance earnings and any expectations here because definitely the oil and gas is expected to take a back seat this time around, but given the fact that crude has come off its high sharply and is now hovering around that $66 per barrel mark in the international market, how do you see impacting this segment and do you believe that now street should start seeing it beyond Q1 and start factoring in the kind of performance that oil and gas as well as Jio could actually come out with in the upcoming quarters?Sandip Sabharwal: So, future outlook will be much more important. So, going forward even the retail business could see some uptake, oil to gas business could see some improvements, and Jio should do reasonably well and Reliance is trading at valuations which are much lower than historical valuations although it is a reasonably owned stock.
So, I would think that Reliance seems decently placed in the overall largecap universe. The key would be to watch commentary on the new investments, on the various new segments where they are investing in, how the cash flows pan out, etc, and that will also be a factor which will determine the stock price movement.
How is it that you are looking at Axis’ numbers because the street seems a little split and divided on how to read the numbers? Of course, it is a steady quarter. There has been that pick up in loan growth that is going to be key, but having said that, their core credit costs they remain elevated.Sandip Sabharwal: One good thing which I have seen about the Axis Bank under the current management is that they have become very conservative and conservative banks typically are the best because they tend to take write offs early, they take provisions early, and they do not unnecessarily report high earnings, and you have surprises which could come out later in terms of bad loans, etc, so that is the key point on evaluating this and that is something which is there in Axis bank now.
And going forward as the monetary easing plays out, we will see improvement in deposits as well as credit growth. So, I would think that at the current valuation Axis is reasonably well placed. I would think that in terms of a percentage gain upside among the large private sector banks, Axis could be the better placed today over a one-year horizon.
What is your top pecking order when it comes to FMCG?Sandip Sabharwal: As results pan out and companies give their updates, so we will have a better idea. But in terms of growth outlook vis-a-vis valuations, something like Godrej Consumer, Dabur, Jyothy Labs, these could be much better placed on the overall valuation growth paradigm and then, would be these other companies like Nestle or Hindustan Unilever, Tata Consumer, etc. And Britannia is something we need to see how they are looking at growth and margins.
How are you stacking up an M&M versus a Tata Motors versus a Maruti?Sandip Sabharwal: Tata Motors has significant uncertainties related to the global portfolio. So, as it is there was expected to be a slower growth and margin outlook, that is the reason the stock initially started to correct and on top of that you have these tariff uncertainties.
So, we need to see how that goes. If tariff uncertainties go, then we could see a sudden up move in Tata Motors also. So, to that extent, although I am not a buyer right now, but for some high-risk investors who are willing to take a bet that between the US and UK there could be a trade deal and tariffs could go, then at that stage we could see a decent bounce back out here.
Overall for domestic focused autos, I would think that this year 25-26 will be better than what the companies themselves anticipate because companies last year expected the growth to be much more than what it actually panned out to be.
This year given the monetary and fiscal stimulus, the companies are more conservative on outlook whereas the actual delivery might be much better. So, M&M continues to do very well. I would think Maruti should also do well. The two-wheeler companies should also come back.
