Q4 FY20 Should Be A Good Indicator Of Turn Around In Consumption Sector: Naveen Kulkarni, Reliance Securities
What’s your take on the Auto Sector right now? Are we in the midst of a structural shift with the “uberiziation” of intra-city travel? Does the sector need to reinvent itself to stay relevant?
Their sector is changing in many ways. On one hand, there is uberiziation theme and then there is the Electric Vehicles challenge. However, on very broad level transportation is both a basic need as well as an aspirational one. We believe the micro themes of uberiziation and EVs aside, India automobile industry will grow in line with rising disposable income. We believe that the essential theme of penetration in India will continue to remain strong for the next decade. However, companies will have to evolve in terms of products to find relevance in the market.
What’s ailing the consumption story in India? Do you see this turning around anytime soon?
Consumption slowdown is on account of higher base and temporary liquidity challenges. We believe that Q4 FY20 should be a good indicator of a turn around in the sector as base becomes favourable and other economic activities gather steam.
How do you see the fiscal deficit situation playing out, especially post the recent tax cut? Are you concerned about Moody’s recent decision to change its view on India for the worse?
The fiscal deficit is a major challenge and divestment of key government assets holds the key for further tar rate cuts to stoke economic growth. In the current scheme, meeting the fiscal deficit target with sluggish tax collections will be a challenge.
What’s driving the sudden spurt in interest in Pharma? Do you think most of the headwinds for the sector are behind us… especially for domestic MNC pharma players?
Pharmaceuticals sector has lot value but the challenges in the sector have also been numerous ranging from US pricing to US FDA challenges. Pricing seems to have a clearly bottomed out but FDA issues continue to be a challenge. However, the risk to reward to slowly becoming favourable and hence the interest in the Pharmaceuticals sector.
Is banking a good bet at current valuations? The Bank NIFTY has, after all, been testing its lifetime highs of late…. Some say that we aren’t quite out of the woods yet on the asset quality front. What’s your take?
Yes, banking is a good bet at current valuations as the sector is past the trough of the NPA cycle and resolutions are taking place. Return ratios for the sector are likely to improve in the forthcoming quarters and the system is stronger than the last five years.
Lastly, what would your broad advice be to retail investors entering the market right now?
The markets are likely to see a decline in volatility and this scenario makes a case for investing in midcap value stocks. We believe there is a good case to add mid-cap stocks to the portfolio. We recommend mid-cap automobile stocks like Ashok Leyland and Escorts to our portfolio as they have a good case to play on economic recovery.
