Was today just an aberration because of the poor global cues?
Absolutely it is just an aberration due to the poor global cues. There is a little bit of a geopolitical tension related to North Korea and that has led most of the markets including ours to trade with losses but we think that this is just an aberration and the markets should soon resume their upward trend.
Whenever you have a sell-off, it does bring buying opportunities. Today what is the theme that you want to discuss, what is standing out where are you seeing these opportunities?
We are quite positive on the entire consumption story in the country. We have already seen an improvement as far as the real urban wages are concerned. Inflation has eased off and that is helping the real urban wages as such and given the fact that monsoons have been quite healthy this year and all the other measures that have been announced to support agri as well as the rural side, rural income would also be trending upwards which in turn should support consumption, particularly ahead of the festive season.
All stocks and sectors related to consumption be it autos or auto ancillaries, be it consumer durables we are quite positive on the entire space.
IT has been in the limelight since last one-one and a half week and may be for more wrong reasons than right. What is your take in this space? Is this space looking attractive from valuation perspective from say more longer term perspective rather than one year?
Something that we need to take into account is that there has been a structural change in the entire IT industry. Deal pipelines are not what they used to be, the margins are not going to continue at the levels that the companies were used to seeing earlier.
There has been a structural pricing decline at least as far as the legacy services are concerned. If we look at the digital side of things, the deal size still continues to be small and they do not really contribute as significantly towards profitability as one would have thought. It would take them some time to come out of this mess particularly given the protectionist measures that most of the developed countries have adopted in the recent past that would be putting pressure on the cost side which in turn would again put pressures on the margins.
Till such time as things stabilise over there, we would prefer to remain neutral as far as entire sector is concerned. Once there is an uptick as far as the discretionary spending is concerned, we would start looking at the sector again but although valuations have dip down to new lows at least as far as the older margins and older returns were concerned. We think that given the fact that there is going to be pricing pressure, there is going to be margin pressure and deal pipelines and the entire shape is going to change these valuations were not really as low as what one would want them to be.
Any particular stocks that you like because this week particularly has not been very good especially for the FMCG stocks? Which are your top favourites within the consumption segment?
If you are looking at the entire consumption space, we are more positive as far as the auto segment is concerned. We think that Maruti could continue to outperform.
The company has done a very good job of introducing new models especially in the higher margin segment and they have seen an excellent offtake even in the run up to GST the company had continued to enjoy healthy volumes and we think that that is a trend which is going to continue going forward as well and that makes a stock attractive from a long-term perspective.
Similar to that we think that even the two wheeler space is looking quite attractive even at current valuations both Hero MotoCorp as well as Bajaj Auto should continue to do well given that they have come up with recent launches of models and they continue to see an uptick both on the economy side of things as well as in the mid segment side of their motorcycles.
In addition to this, within the consumer space we prefer the consumer durables companies so be it Blue Star, be it Voltas we think that they would continue to see an uptick. They had seen a bit of a pressure due to inventory destocking by dealers just in the run up to GST but given that we do expect this festive season to be quite healthy. We think that there would be a healthy remark for both the companies which in turn should result in outperformance from these stocks as well. Within the FMCG space, we would prefer to go for the midcap players as compared to the large-cap players and companies like Britannia, Dabur as well as Marico which have good valuations and at the same time they have continue to display a healthy growth as far as their volumes are concerned.