ETMarkets.com”We are paying relatively higher prices for auto stocks, but I am still excited about a few players. We are also into auto ancillaries.”

Deepak Shenoy, Founder, Capital Mind, says “we are paying relatively higher prices for auto stocks, but I am still excited about a few players. We are also into auto ancillaries. We believe that as this growth comes in, some of the growth numbers will match their relatively smaller margins in comparison.”

Shenoy also says that they have no pharma companies. Maybe, a momentum which is a quantitatively driven, price driven strategy will make them consider pharma again, but the fundamental portfolios do not have these stocks. He also says that he may get into chemical stocks at a later stage.

We have been discussing the boom in the auto pack for a while now. Would you still say there is value on the table and there are still names one can maybe add positions to or even buy afresh?

Deepak Shenoy: Honestly, we have a position in M&M and so are quite biased there. But part of that is because it is not just an auto company. They have got a bunch of other investments in industrial manufacturing, in defence and in a bunch of other sectors. All of them come under this massive holding entity, which M&M is and we are hoping that at some point, there will be a sum of the parts being greater than the whole kind of either as a demerger or at some point value unlocking will happen at M&M.

Among others, the two-wheeler pack should do well in the coming few months simply because we have elections and elections means money goes to the rural sector, rural sector means they buy bikes, that is the typical thought process. So, the two-wheeler sales should start coming back at least in this coming quarter as things go forward. I do not believe, however, that a lot of the fortunes there also depend on the monsoon.

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So, the vagaries of monsoon could spring some negative surprise. On four-wheelers, I still think personal vehicles seem to be growing quite decently, though not super strong. So, while I do not understand the growth of Maruti, M&M and Tata, at least the sales numbers seem to be very exciting. So, that remains something which is quite exciting for us, though Tata Motors’ India business is relatively small compared to its global business and the larger balance sheet they have.

On the commercial vehicle side, we have not seen much activity recently. But again, I will wait for results to see whether we are seeing any kind of upward bump because of the recent capex increases. We expect that to help and so overall, I think auto has a good run in sales. The prices have also run up and so we have to be careful about what we buy, because anything we buy now can still see a 20-25% downside simply because markets will correct a little bit.

Not banks, prefer industrials, manufacturing & domestic economy focused companies in our portfolios: Deepak ShenoySo, we are paying relatively higher prices for them, but I am still excited about a few players. We are also into auto ancillaries. We believe that as this growth comes in, some of the growth numbers will match their relatively smaller margins in comparison.

Within the pharma pack, have you bought anything or is anything on the radar?

Deepak Shenoy: I am looking at the returns in some of these stocks. It is the larger section. Sun Pharma, for instance, is quite exciting in terms of market returns. We have not seen any major change in the fundamentals, but sometimes that just happens. Prices move before the fundamentals. But we would like to wait for results this time to see how things pan out. We have no pharma companies. So, maybe, a momentum which is a quantitatively driven, price driven strategy will make us look at pharma, but the fundamental portfolios do not have them. I find it very exciting. We used to own a bunch of pharma stocks earlier, but they did nothing for a long period. The only external factor that is not visible right now is what FDA actions may end up doing because their inspections have started to come back. Other than that, I do not see any major bumps. We have to see whether things have actually changed on the ground.

ut what about healthcare and diagnostics, hospitals, etc, because there at least the trend is of more spending and the premiumisation in terms of consumption also partly has a play in the hospital sector as well and healthcare segment. What is your view there?

Deepak Shenoy: Absolutely. We own a hospital. We may own more going forward. The idea over here is that, like you said, the premiumisation, relatively the higher demand for healthcare across the sector, whether it is people having a lot more issues with their health that require hospitalisation.

Earlier, people just used to get treated at home. But over the course of the last two decades, you have seen a lot more people going to hospitals in general and the hospitals themselves also gearing up and getting more return oriented in terms of shareholders. It was not a process that we had seen very big earlier. That is one of the reasons why as a broad macro trend, hospitals have been exciting. I think that will continue to be the case. This year, supply is way less compared to demand, whether it is at the premium end or at the lower end. So, I do not see that dynamic changing meaningfully at all.

Invest in pharma for safety but be wary of IT names now: Pashupati AdvaniTherefore, if there is good corporate governance, shareholders and hospitals should see significant growth. We are also seeing export of health services as a big thing going forward simply because healthcare has become either expensive or not easily available in countries that are more developed and therefore, as India shapes up in terms of its presence and its processes being accepted worldwide, I think more medical tourism will come inbound. Some hospital companies are investing in hospitals outside of India as well to take their services there. So, I think all of that will benefit the sector.

Is it time to bet on the chemical space again and do you see any sort of balance coming by in the demand and supply situation? The stocks have been really beaten down, but at some point, they are going to make a comeback.

Deepak Shenoy: That is the hope, I think it is eternal, at least in this time in the chemical space, it seems to be worse than pharma. Pharma seems to have recovered a lot more. They both had challenges at some level of China pharma’s probably less than in chemicals. Chemicals, a lot of things that are specialty and commodity, have a significant competition in what China does and to that extent, margins will remain compressed for the next few quarters at least.

But surprises can happen. I expect prices will probably lead and fundamentals will follow. I think a long-term approach will help because most of these companies do not have debt or do not have meaningful amounts of debt to speak of compared to the pharma crowd. We will actually see a better balance sheet help them as the markets recover, as the underlying chemical market recovers. But one will have to wait.

So, if you have patience, this may still be a good place to play in. But companies that make, let us say, pure play caustic soda or something like that, may not be the best place to place your bets on because efficiencies have a very little role to play there. It may be in more specialised chemicals that you will want to do something like set up your long-term bets.

India heading towards huge earnings growth; 15% return can’t be ruled out: Vinay JaisingWe currently do not have any of these stocks as I do not know enough of the space to be able to say I can meaningfully track it years before it starts happening. but I am also on the lookout. We will see the numbers and as the numbers come in, I know we will be late, but we might get in at a later stage.