Telecom, FMCG & pharma are the only three sectors which will show some growth this year: Centrum Broking

Focus on insurance and high quality retail banks like HDFC Bank and Kotak Bank, says Nischal Maheshwari, CEO- Institutional Equities.

How long can one remain invested in this steroid or liquidity-infused market because those who think it is only liquidity are not participating and are feeling left out and those who are participating know that this could turn any time. So what should one do?
This is a liquidity-infused market and I believe for the next six to nine months, this liquidity will be there and you may find more of this liquidity coming in as countries across the world face more challenges. So I do not think this rally is obvious. This liquidity will not go away in a hurry; so you have to be at least invested. What kind of stocks you choose to invest in is different but I believe you should be invested almost fully in this kind of a market.

What are the last three purchases you have done on behalf of your clients? The markets are going higher. We can argue whether it is liquidity or valuations or whether it is something else. Bottom line is buying shares is making money. How are you participating in this?
We have continued to say that if you want to be defensive in your portfolio, invest in FMCG or pharma stocks. In case of banks, you should be underweight but focus on insurance and high quality retail banks like HDFC Bank and Kotak Bank. The only difference is we have been saying you should be invested even in metals and that is a clear call. There is liquidity across the world and it will find its way into various classes of assets and metal is one of the assets which is hugely monetised and huge amounts of trading happens on metals. I believe that is another way to actually play this liquidity.

Where do you think Bharti Airtel is headed? It is at an all-time high. For someone who has missed the bus, at what price should one get in again?
This is a good price to get into Bharti. Yes, it is an aggressive valuation for the time being but this is one of the companies which is going to show growth in earnings in the current year and it is one of the very few sectors in this economy which is going to show growth in the current year. I definitely see the bottom of the ARPUs being made. We have only around two and a half players in the market and I think it is very clear that Bharti is on a very strong wicket and this is a good price to go in.

Where would you say FMCG stocks are headed? Is buying Britannia at a PE multiple of 60 or Nestle at a PE multiple of 50 sensible or is that like following the herd?
At this point of time, I have been recommending only preservation of capital because whatever this market is showing, on the ground things are very-very different. We have been talking to a lot of corporates, distributors and retailers and there is no connection between what is happening in the market and what is really happening on the ground. This is the time to preserve the capital.

FMCG is one of the sectors where the basic demand is still going to continue. So you should be invested. Given that there is so much liquidity, you can participate in the market. You may not outperform at this point of time but preservation of capital and participating in the market is important. That is why FMCG is where most of the people are hiding and we are strongly recommending to remain invested.

What is your perspective with regards to consumption stocks? What are your key takeaways from what you have been hearing from them?
They are being conservative and they are saying that this is a tough market. There is going to be down trading, which is going to happen continuously. People are going to buy small packs; so I do not think there is going to be huge volume growth. But definitely they will do around 5% to 10% kind of growth across the sector and I think that is a very good number in this kind of a market where most of the other sectors are going to have a de-growth. There are only two or three sectors which are going to see this kind of growth. Telecom, FMCG and pharma are the three sectors which are going to at least show some growth. Most of the other sectors are going to show a de-growth in FY21. So we continue to believe preservation of capital is very important at this point of time.

What about IndiGo? Tough times ahead for aviation?
I agree. At this point of time, there is so much uncertainty around that sector. I think it is best to avoid it. They cannot even match last year’s numbers and it will take another two years for them to come back. What you have to see in this sector is what is the expectation in the market and how much capacity utilisation IndiGo is able to do. According to our estimate, IndiGo would be around 60% to 65% capacity utilisation and they will be able to manage through the year, which means that a price closer to around Rs 800-850 is a better price to enter IndiGo rather than at current prices.

You are seeing a surge in two-wheeler names and selective CV names with focus on the rural end of the market. You have also seen a big surge come by in ancillaries. Do you believe there is a fundamental buy here or do you think this is just a near-term bounce?
My view on auto for the two or three quarters has been that two wheelers is the space you need to be in. Before Covid also, we believed that two wheelers are going to do much better because they are low ticket discretionary items compared to a car and we believe they are going to achieve their volumes. Again post-Covid, we continue to believe that this is the first place where discretionary purchases are going to happen even if we believe that people are going to go back travelling individually and not travelling together. Also, given that everybody’s income has come down, people will prefer a two-wheeler rather than going in for a four-wheeler for travelling. We like Hero Honda, which is more focussed on the rural side. Bajaj also is a good play because 50% of it is in exports. Both these stocks look pretty good as far as two wheelers are concerned.

The other space which we like is the tractor space. Again, with rural focus, there is a huge amount of support coming from the government; so both Mahindra & Mahindra and Escorts look good in that space. As far as auto ancillary is concerned, I would avoid most of them except for Motherson because Motherson largely has only 10% to 12% exposure in India and remaining is all over the world and we are seeing the world opening up much faster than India. You have to be very selective in autos. Maruti is an avoid at these prices; below Rs 5,000 one should keep on accumulating Maruti.