Risk-off mood of global investors can spook D-Street rally: Sudip Bandyopadhyay

The tractor sales numbers definitely indicate that rural India is in a slightly better position compared to urban and semi-urban India, says the Chairman of Inditrade Capital.

What is the market trend looking like for the moment?
We definitely have a positive bias in Indian markets. It is definitely getting fuelled by the liquidity which is available in Indian markets because of the FIIs coming and investing on a regular basis. Of course, any risk averse mood or risk off mood of the global investors will affect Indian markets going forward as well. We have to be cognisant of the fact that the fundamentals are quite a distance away from the valuations at this stage in Indian markets and the frontline stocks are concerned. So that is the risk which we carry but the liquidity will definitely continue to come into Indian capital markets for some time.

The positive thing as far as Indian markets is definitely the news about monsoon, which is expected to be 100% or 102% of normal. Some amount of pickup in rural demand is also getting demonstrated through the tractor sales numbers of the leading tractor companies. That definitely augurs well going forward for India. So yes, it is a positive mood at this stage as far as Indian markets are concerned but we need to be cautious because the risk-off mood of global investors can spook this rally.

There seems to be quite a strong view that we are going to see that demand revival. Would you agree? If so, where else in consumption would you be looking for an opportunity right now?
Even before Covid -19 struck India, there were green shoots visible in rural India. Two, look at the government’s incentives and the fiscal support. The monetary support which the government and the central bank has been giving is definitely getting in rural India and it is helping the consumption in rural India. Also a small factor but I think a significant contribution for consumption in rural India in the near future would be the migrant labourers who have moved back to their villages and native places. This will give a little bit of boost to rural consumption. And the consumption patterns will probably improve a bit because of the presence of urban labourers who have gone back to the villages.

Overall, we believe that rural consumption is coming back. We are yet to find out whether it is going to be coming back with a bang or slowly but the tractor sales numbers definitely indicate that rural India is in a slightly better position compared to urban and semi-urban India. The fact that monsoon prediction is good also augurs well for rural India. Overall, we think that if you have to bet on recovery it will be a much safer and better bet to place on companies that have excellent rural distribution and products of which are sold in rural India. So consumer staple companies like Hindustan Unilever, Dabur, Marico, some of the tractor companies, some of the NBFCs who have a presence in rural and semi-urban parts of the country, including microfinance companies, should be the best at this stage.

What is your take on the pharma space? Do you think there is still potential to dip in?
I have been positive in pharma for the last six-eight months and I continue to maintain my positive stance. But one has to remember that the pharma space has inherent volatility. Regulatory process and regulatory restrictions and inspections make the entire pharma sector extremely volatile, particularly companies who have significant exposure in the US markets.

All Indian large pharma companies have significant exposure in the US markets. So pharma will continue to remain volatile but if somebody is taking a one year plus view of pharma and wants to invest, they can get into Sun Pharma or Dr Reddy’s which has moved up quite a bit. One can also get into Auro Pharma. I think all these are good bets at this stage.

I will also like to point out one other thing that companies which have a significant market share in the domestic market also should definitely be looked at. We should not forget that domestic pharma consumption is growing at about 15% CAGR. So a Torrent Pharma and even Sun Pharma have excellent domestic business and you should look at that.

For an investor who is betting on long term in pharma, instead of buying a single pharma company, it will be much better if he buys at least a few because there is volatility and you can never predict what will happen with a particular US FDA approval or some regulatory structure. So if you want to really be in pharma at this stage when valuations have moved up quite a bit, buy a basket of pharma companies.