In the last couple of weeks, we have actually seen new trends building up. Attention is shifting to broader markets and clearly the way IT and pharma have continued to outperform have come as a little bit of a surprise.
Yes, absolutely. We have to also look at the global scenario. From the last four-five times before the US presidential elections, the US markets have seen signs of volatility and nervousness. Of course, that does get corrected post the elections and the US markets start going up. We are probably seeing pretty much a repeat of the same. There is volatility and nervousness in the US markets.
Also, one has to remember that this time before the elections, markets are at an all-time high and pretty much across the world, markets have touched new highs or have risen sharply over the last few months. So little bit of nervousness, volatility, profit taking is definitely visible across the world, including in emerging markets like India.
Now having said that, we have few positives particularly in the area of liquidity. Globally, there is more liquidity which is still keeping the risk on mood of the investors and domestic market. If we see, there are definite signs. The festive demand is expected to show positive results and positive numbers in case of lot of FMCG and consumer durable companies. We also have lot of sectors which had dependent on rural demand looking up. And of course, the entire IT and pharma pack which are both in a structural upward movement.
There are questions on whether we are done with the move but the way things are poised, we believe both IT and pharma are probably in the midst of a bull run. Remember, pharma had two-and-a-half years of bear market and now it started coming back. There is a structural change happening and the rally is going to run for some more time.
The move in pharma has definitely caught analysts off guard, which is why there has been this rush to rerate the entire sector. The same can perhaps be said about retail investors as well. It is the HNI frat which was smart enough. Does it mean there is further headroom and money to be made in pharmaceuticals? If so, which stocks would you recommend to our retail participants?
As I was just alluding to pharma, we have seen a two-and-a-half years of bear market. It started coming out of that and it has been performing very well over the last few months. There are genuine reasons. A) pharma was beaten down mercilessly. B) Because of the pandemic, lot of things are changing in the pharma space and there is going to be incremental demand for multiple pharmaceutical products and C) Finally, the approval process. I think a lot of these pharma regulators are speeding up the approval process. Remember, the regulatory challenge was one of the biggest challenge for Indian pharma and that to an extent is getting eased up because of the onset of the pandemic and the need for fast tracking lot of these molecules and formulations.
Now keeping these three in mind, I will say there are sporadic incidents which lead to spurt in prices. Like what has happened in case of let us say Dr Reddy’s; I think that is a great opportunity. It is a $7.5-8 billion market and obviously there are significant positives. We have been positive on Dr Reddy’s and we believe Rs 5,000 can be the short- to medium-term target and investors can look at that even now.
The other development I would say is because of the Perrigo’s withdrawal of inhalers. That gives an opportunity to Cipla and Lupin. So obviously, there is an excitement. But if you look at medium to long term, a lot of pharma companies are worth buying even at this stage.
I talked about Dr Reddy’s. One can add Cipla to that list. One can add Auro Pharma, Natco pharma also to that list. My recommendation to the investor will be when you are getting into pharma, maybe build a portfolio of three-four pharma stocks at least. There are inherent volatility based on regulatory approvals and whole lot of other market factors; so buy a basket of pharma and plan to hold it for a year and you will make lot of money.
Anything that you see catching up in cement, real estate or infrastructure sector?
The unlock is happening all around us and more unlocking of the economy is expected. I believe these hiring companies and these temp staffing companies like QuessCorp can be looked at. The stock had been beaten down quite a bit earlier and there is opportunity of this moving up from here significantly.
The second pocket I would like to point out is life insurance. With this pandemic, the need for insurance and protection has been felt by the public in general and these three established companies SBI Life, HDFC Life and ICICI Prudential are going to have fantastic five years. Under these circumstances, if you compare the valuations, I like ICICI Prudential. That stock can be picked up at current levels.