This is the right time to play global cyclicals: Mihir Vora

We continue to be very bullish on the pharma sector. We are playing a bit cautious on financials, says the Director & CIO, Max Life Insurance.

Maruti, Hero MotoCorp have managed to outperform on account of the festive season as well as easing of supply. How have you read into the August auto sales numbers?
Auto is one bright spot in the overall discretionary consumption space. Since we are seeing some traction coming back into the discretionary space, especially in the rural side, the next few months could see better numbers from the auto space across segments, not only two- wheelers but even passenger vehicles and tractors, where we see rural demand picking up.

The good thing is that we are already very close to the peak festive season and even though we do not have Diwali this month, the inventory building and the stocking of the pipeline has to begin because the industry needs a high level of inventory for the festive season. For the next couple of months at least the traction should be there.

How have you assessed the impact of the AGR verdict on the individual telecom companies?
The good thing is that at least this big uncertainty is over. Now because of this 10-year window, we need to see how the industry shapes up and whether it boils down to two players or we continue to have three players in the industry. But the bottom line is that the worst of the price competition is definitely behind us, whether we are in for a duopoly or three player system and to that extent, given that data is going to be priceless, the bandwidth consumption is only going to go up and with work from home accelerating the need for better bandwidth and better connectivity, good times are in for this sector.

Do you like any of the stories within the metals sector and steel in particular?
In India, steel is pretty much the only play as far as pure metals is concerned. And it has two tailwinds One is that the overall global traction is picking up. We are beginning to see China getting back on growth path and more importantly because of the trade friction and the government’s strong resolve to proactively make sure that India is not a victim of dumping especially from China, we are seeing that even within the steel space, certain segments are being protected and more and more anti-dumping measures being taken.

So there is a tailwind of global demand picking up. Overall, global prices are stabilising and even going up. Iron ore has been very strong and we also have the increased protection scenario for the local industry. So to that extent, this sector has deep value. We are not typically value players but we do believe in playing global cyclicals and this seems to be an opportune time for that.

What about banks? It seems that the moratorium issue is a big overhang.
We are playing a bit cautious on financials. The next month-and-a-half is going to be very crucial. This interest issue to me is a smaller issue. The big issue is what is the behaviour of borrowers once the moratorium is off? So now the moratorium time has lapsed and in the next month, month-and-a-half, we will begin to see how many companies have come back, how many individual borrowers have come back and asked for restructuring of the loans.

The restructuring number is going to be very keenly watched. The second thing is that because of the global liquidity flush, cost of funds will continue to be benign. So to that extent, this is a tailwind for the sector but the most important thing is how the restructuring story plays out. Having said that, the good thing is because of the markets having sustained well in the last few months. A lot of the good private sector banks have managed to raise a significant amount of capital. They are well capitalised and ready for growth as and when it comes. We would relatively be picking those banks which have no problems of capital which is at least most of the large banks in India.

What about pharma? There will be a little bit of a cool off in the frontline names. Where does your preference lie in pharma?
In pharma, it is a mixed bag. We are very bullish on the sector and as a sector, we are significantly overweight and continue to believe in that space.

Within pharma, earlier it used to be more of the formulations, the generic exporters which continue to be a story but relatively in the last few months, we have also increased exposure to companies which have strong manufacturing facilities and which have strong API capabilities. These companies are also planning to get more and more backward integrated into the supply chain.

The Make in India initiative is going to be a big positive for the pharma sector. The government is making sure that we are putting the right amount of incentives in the right segments. That is one segment where we continue to be bullish and for formulations where we continue to be bullish, we are also now looking more at contract manufacturers and API manufacturers.

Another theme that has topped out is chemicals. Do you continue to be bullish on that front too?
Yes, while valuations have run up a bit and maybe a bit ahead of time, but like in the pharma segment, this is one segment where not only the Indian government but also global multinationals are actively looking to de-risk away from China. But the size of the Indian industry is a fraction, maybe a tenth of the size of the Chinese industry. So, even if 10% of Chinese production has to move out, it can mean a significant amount for the Indian producers.

Most of the companies in this segment are not very big and have Rs 1,000-crore turnover, Rs 500-crore turnover and maybe Rs 2,000-3,000-crore turnover. These are companies which are small and can grow significantly. The thing to watch out for is how actively and how fast they are able to execute their growth plans because land, pollution control approvals etc do tend to take time but if the government is serious as it seems to be, then we can scale up very rapidly. So to some extent these premium valuations can be justified.