Avoid auto, financial & MF stocks: Pashupati Advani

I am positive on telecom because I still feel the ARPUs are very low, says Founder & Chairman, Global Foray.

Do you believe volatility will be the name of the game and the doors are open for downside given the way the overall global economy is fearing recession and job losses?
The economic news that we are seeing all around us is obviously not so good. If you look at non-essential business, they are struggling to even come up with revenues despite the fact that some of them are allowed to open their factories with one-third workers or half the workers in certain states. So it is a challenge for everyone.

What do you think investors should do at a time like this? Is there a lot of lucrative opportunity emerging in the midcaps as well as they are aligning themselves with the front liners and not seeing as adverse a fall as they were accustomed to?
One thing I am seeing is that the big companies are actually taking an opportunity to raise liquidity, which is a good thing and it tells you that they are preparing themselves for the future. Yesterday, there was Bharti Airtel and today there is news about Kotak Mahindra Bank as well. What Jio platform is up to is honestly mind boggling and it is fantastic that all these big VCs are writing big cheques into India. But the reality is that the market is still floating.

What I am hearing is that the SIPs for June will be a little bit weaker because they had a 30-day cancellation; so maybe we would not have as much robust flows that come into equities. FIIs generally are being a little quiet towards India because there is a lot of uncertainty and we have some saber rattling in Ladakh, which is not helping. Nobody really knows what is going on over there but it does not sound good and for it to be happening in the middle of this pandemic is not good at all. So these are all the challenges that we face at this point.

But do you think financials have come to a point where the big five can be bought or do you think there is further correction in the pipeline?
I am still bearish on financials simply because I feel it is only the tip of the iceberg. So far people are managing to put results behind but what happens when you get to July and have to start reporting the April-June quarter? One thing I am seeing is that a lot of companies have taken the moratorium option. So the question is, are they going to just forget about paying interest or just paying later because at the end of it, someone has got to bear it. So it is going to be a tough call.

The second thing is so far we have seen cuts in salary, which is obviously going to affect certain sectors but we are also seeing layoffs happening. I read today that Uber is laying off 600 staff; so that is the tip and a lot of the VC-backed companies which are actually looking at being the next set of unicorns are seeing huge layoffs. So those are the challenges; it is not just India, but these are challenges that the whole world is facing and India is probably facing its worst because we really do not have a welfare system to catch people.

What do you do with telecom stocks then? It seems that the Jio platforms are going to be listed in the US in another two years; at least that is what the buzz is. Then you got this promoter selling into Bharti that has brought the stock a bit lower. Do you buy Bharti afresh at these levels?
I am actually positive on telecom because I still feel the ARPUs are very low and it does not take very much. We have gone from around Rs 100-110 to around Rs 150-160 ARPUs and if we get to Rs 300, all three telecom companies are going to be laughing all the way to the bank. Now the government also is probably not going to let us get to Rs 300 in a hurry. But I think every step we get towards Rs 300, it also gets the government the revenue. So it is a win-win for everybody.

Now, people are sitting at home, they are using more data and playing games and watching content. All these things are positive for data providers and most important for telecom companies. It is an industry that is here to stay and is not going to go away. The only other question is, are we going to have 5G in a hurry? Probably not. We do not need to invest in the technology yet but I think that our existing 4G will get better and it will be a win-win for all concerned including the consumers because they are getting more content, education and all sorts of other things.

We are seeing glimmers in urban consumption and some preference for names like Jubilant Food. What is your take when it comes to that segment of the market? Are you still positive on urban consumption?
Urban consumption is not going to go away but it is going down the value chain. Obviously that is good for Jubilant because people who may have ordered from a high-end QSR restaurant may decide to eat pizza. So that is one of the things that is positive for Jubilant in this whole game. But yes, people’s behaviour patterns are changing. We make jokes in our house about the last time you actually wore shoes because we do not wear shoes in the house and we have not gone out very much. So what happens to the shoe industry? What happens to the clothing industry? What happens to other industries which are not necessary?

Food on the other hand is essential. People are getting bored of cooking at home; so they are spreading to Jubilant and to other takeout venues. Maybe that is what is happening. But new models are going to come up and that is all very positive in the long run.

But going back to sectors that one would like to invest in; definitely healthcare is here to stay. Whether we like it or not, more hospitals will come up in capex. Logistics is another area and diagnostics is another area. So there are sectors that are doing okay. I am not particularly happy with autos. I am not happy with financials yet and I think the other industry that is likely to get some kind of a hit will be the mutual funds industry because you will see some redemptions and the Templeton problem as I call it is not going away in a hurry. So those are the other challenges for that space.