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investment themes: Consumer durables, banking, IT and auto stocks look good from current levels: Pankaj Pandey


“We are not very convinced about railways stocks and we do not have much of a coverage there. Defence looks quite convincing from that perspective that if you are spending one and a half lakh crore on capex, if you do more indigenisation, it obviously offers higher opportunity for defence players. But while the overall capex is good on railways, we are still not very convinced and are playing that largely through technical calls,” says Pankaj Pandey, Head Research, ICICIdirect.com



The Nifty closing above 18,400, Sensex trying to claim 62,000 at closing bell with markets trading where they are, what is the strategy you are putting out to clients for the pockets where they can make money?
On the Nifty, about one-third of the weightages are driven by banks. Across banks, we are seeing high credit growth, spreads are better, ROAs are improving and so that part of the Nifty looks sorted.

In IT overall, our sense is that risk reward is good with overall global macro sort of improving so I think with both banks and IT combined, 50% of the Nifty look sorted and which is why we believe that overall Nifty is headed towards fresh lifetime highs. Having said that, banking is looking quite good to us. Besides banks, IT is another sector where risk reward is panning out to be a lot better.

In addition to that, we are positive on discretionary consumption themes – be it autos or consumer durables. Capital goods and defence have largely played out quite well but fresh entry at current levels is a bit challenging. So consumer durables plus banking, IT and autos are looking good to us even from current levels.

Have you been a buyer in any of these new age tech/newly listed businesses?
We have been avoiding this space for quite some time and we are still not very gung-ho. My perspective is very simple. When you look at FMCG as a sector, that is where you get 10 times sales but that is a profitable and a stable cash flow kind of a model.

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Similarly, when you look at CRAMs as a space, something like Divi’s where on a forward basis, we are giving about 8 to 9 times sales for their CRAMs, that also is a 40% EBITDA margin kind of a business. So somewhere down the line, whenever the rest of the segments are trading in excess of 10 times sales with not the kind of profitability these two segments offer, it is very difficult to turn bullish on some of these counters and which is why we have been avoiding this space for quite some time and do not expect to touch them in your future as well.

What is your outlook when it comes to the entire pharmaceutical space given the fact that a lot of these hospital stocks have been up to their winning ways? The operational performance for a number of these companies like KIMS or improved quite significantly. Is there merit in betting on the entire hospital space?
Absolutely. Within the overall pharma and healthcare space, hospitals are quite a bright spot. There are a couple of reasons for it. When you look at the recent PE deals, that is about 22 times on a EV/EBITDA basis. Most hospitals are trading below 20 times and when one looks at the recent quarter’s numbers, the occupancies have gone up and the share of government hospitals or the share of business that they were doing for the government is also coming down. It is a sort of a low margin business for them.

The medical or the number of international patients is also going up and as a result of that, even for mature hospitals, the margins are going up. Apollo for example posted about 28% kind of margins for a mature business. So we like the entire space.

One stock I have to highlight is Healthcare Global. It is a specialist in cancer and so this is one stock which is sort of trading at about say 15 times and we feel that overall healthcare as a space is looking good and within that, besides

, with the target price of Rs 370 is looking quite attractive to us.

Is this hot air? Why are railway stocks going high? Defence I can understand. India will be spending more on defence and defence import will be curtailed. What is the theme in railways?
We are not very convinced and we do not have much of a coverage on the railway stocks and defence looks quite convincing from that perspective that if you are spending one and a half lakh crore on capex, if you do more indigenisation, it obviously offers higher opportunity for defence players. But while the overall capex is good on railways, we are still not very convinced and are playing that largely through technical calls.

I cannot really give you a very broad perspective and it is still not very clear to us why some of these names will become so good.



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