Lot of global developments and now with geopolitics as well included in that and then of course back home the SEBI F&O curbs as well. How do you think all of this is going to play out for our markets because a large part of the correction I guess already played out on Tuesday and Monday, of course. Today, it seems like it is going to be a sedate 1% kind of downtick.
Hemang Jani: Yes, while we were enjoying the holiday, a lot of developments were happening globally and even Tuesday evening we had this circular of SEBI curb the F&O trade. So, I think it is going to be eventful. My understanding is that as far as the broader markets are concerned, we had already started seeing the trend that they might pull off a bit and again, we are entering into earnings season and the quarterly updates would start flowing in.
So, I think the broader call one will have to take only post getting the clarity on the earnings picture. But my overall view is that the Nifty or the largecap companies by and large should hold out. I do not see a reason for a significant downward correction as far as the Nifty and the largecaps are concerned. Broader market, it might cool off and it is good.
I think it is healthy that after seeing a very significant up move in the last one year, if they go through a bit of a pause, we should not complain about it and you will find some good opportunities wherever you see meaningful correction in the broader market as well.
So, I think just we should have a bit of a wait and watch kind of an approach and look out for buying opportunities whenever there are sharp corrections.
But in the meantime, what about the kind of the views that are coming in on the entire FMCG space? We had some operational updates as well kick in. Dabur saying that mid to single digit revenue growth is expected. You have Marico as well concurring with that, that domestic business will see mid-single digit growth and Investec as well saying that it has been the weakest quarter in the last four years.
Hemang Jani: Yes, I think after seeing a bit of a revival in the FMCG pack and people talking about green shoots, I think the updates which have come through from Dabur are not encouraging. Marico also is okay, but it is not that bad. But I think we should watch out for the broader sector performance. Maybe Dabur can have company related issues and the stock price also suggested earlier that there can be some sort of a disappointment on the business update. So, overall, this is a defensive sector and for some of the companies like HUL, Godrej Consumer, the fact that the palm oil prices have corrected sharply would also help them in some way.
So, I would be equal weight on the sector. HUL would be something that we would be comfortable with. Marico is something that we have been liking for a while. Godrej Consumer again because of the fact that the palm oil prices have corrected. So, take a selective bet. But in volatile times FMCG typically provides you some sort of a stability, so I think we should have some exposure there.
Do you believe that there is a meaningful move and investment opportunity in metals?
Hemang Jani: From a technical or trading perspective, surely this space makes sense, given the recovery that we have seen in the Chinese markets, the possibility of a very strong stimulus and the fact that the pricing environment is getting better, both for ferrous and non-ferrous metals.
So, I think something like a JSW Steel, Jindal Steel, also Hindalco, Nalco, Moil, I think these are some of the names that should do well in the current scenario, but we have to bear in mind that a part of the run-up has already happened. So, one is not really looking at a very significant up move from current levels, but it does provide some more room to participate in that trade.
Where do you stand when it comes to the entire metal space? Brokerages clearly giving a thumbs up saying that now the steel producers in particular are in quite a sweet spot. Do you agree?
Hemang Jani: Yes, I do think that steel companies do provide a good trading opportunity and given the fact that something like a JSW Steel, Tata Steel, have not really participated in this entire run up that we have seen and with China showing so much of strength both in the stock market as well as possibility of a stimulus, so I think that bodes well for the steel companies. So, JSW Steel, Jindal Steel, Tata Steel are the names that we like at this point.
What is your view on Ola? Went public at 75, went to 150, 150 has become 100. So, it is 50% higher than its issue price and 50% lower from its all-time high.
Hemang Jani: Typically, newly listed company and that too in EV kind of a space, they go to the market with very high valuation, very high expectations and sometimes when there is a frenzy in the market around listing time, you do see these kind of moves. But my overall belief has been that the growth story, while it may look very good on an Excel sheet, the actual growth valuations I am not very comfortable buying these kind of companies unless you find them at decent valuations.
So, I have always been saying that go with the incumbent players like Bajaj, TVS, those are better placed because they also have a reasonably good presence in the EV market, plus their current business is showing a decent growth. So, why pay such exorbitant valuations to a new player just because he is only doing EV.
In general, it has been a good run for pharma. Is it time now to move out of pharma to diagnostics and healthcare?
Hemang Jani: When you look at the pharma space, the diagnostics and the healthcare is a very small component of the overall market cap. So, you can have some allocation, some exposure to the healthcare names. But pharma is a relatively bigger space. And given that we are seeing very good positive commentary from the likes of Lupin, Sun Pharma.
Aurobindo, of course, it has a little bit of issues in terms of the observations, but business per se is looking up. So, I do think that in this kind of times when the sector performs and in this last quarter, pharma was one of the best performing sectors in terms of earnings growth, about 24% growth. So, I do think that one should continue with Sun Pharma, Cipla.
Even Aurobindo, if it corrects a bit, will provide a good entry point and have some exposure to the diagnostic companies like Dr Lal PathLabs, which is expanding into the southern part, the pricing stability is coming back. So, I think some combination of that would be good in the overall scheme of things.
News bits are indicating that the top five firms in the engineering space, L&T, HAL, BHEL, KEC, and Kalpataru have accumulatively acquired fresh orders in the first half worth about 2.04 lakh crores. How are you looking at the order momentum picking up and what this spells out? Is it going to be a very sort of divided view when it comes to the top five players or is it going to be a blanket call that order momentum will pick up across the board when it comes to capital goods or engineering?
Hemang Jani: Overall, momentum is still very good across the space. But if I have to make a fresh entry, I would be more comfortable getting into an L&T or Siemens, ABB where the order flow momentum is very strong. And I would definitely avoid some of the midcap companies in the infra space which have also done very well. So, it makes more sense to be a bit selective in the space given that the run-up has been sharp and the valuations are stretched.
Diamond prices are down 25% to 30% and artificial diamonds or lab-grown diamond, as they are popularly known, they are destructive for the entire jewellery industry per se. In the light of what is happening to the diamond industry because of disruption, where does a Titan or a Kalyan or for that matter, PC Jewellers, where do they fit in?
Hemang Jani: The way we look at this whole space is that diamond would contribute to a certain part of the revenue and profitability and at the end of the day when you are running a jewellery chain, you keep all options for the people.
And so, if there is any confusion with respect to lab-grown diamond or the diamond business per se is going down, you could always have a strategy that will make up for that shortfall with some other jewellery items.
So, when you look at the numbers per se, of course, Titan being a larger player, the overall growth is not looking that great, but given the positioning, the fact that the segment is growing, even when the gold prices are at an all-time high with a very significant high margin, I would surely have a positive view on Titan with some more exposure to the midcap companies, something like a Senco or Kalyan, which are also doing well.
But definitely, this is a space that should do well, A) because of the festive season, because of the wedding season, which is going to kickstart somewhere in the next couple of months. So, combining these two, this space should do well.