market

Ajay Bagga on pharma stocks and top sectoral plays in this market


Overall, last week we have broken a five week falling range but if you see from 1st October when the big FII selling started in our markets from 17500 we have barely reached 16200 so it has not been a good market for nearly eight months now. It has been a very sideways to declining market, said
Market Expert Ajay Bagga in an interview with ETNow. Excerpts:

How are you looking the Nifty pharma space?

Pharma you have to divide into four, five pillars; central to pharma is our generic players who have been hit by the US revenue slowdown over the last three years, is that turning is the big question. I think this year we might see a bottoming out at least of that fall.

Second would be the APIs and the input providers, those we have seen mixed results with the input cost going up and wherever they could substitute for China those players have done better.

The third is the pharma suppliers to the Indian market, those have given good results. Hospitals is a mixed bag, we have seen some of the major hospital players getting corrected while midcap we saw some interest but clearly they are not doing that well.

And finally diagnostics which has been a carnage of sorts with again some players saying that the pricing that is coming into diagnostics is it like the telecom price wars where as an entry barrier being broken by very well capitalised players who are trying to build their traction in the play by reducing cost to very low levels of Rs 100 a test and stuff like that. So diagnostics are really facing a challenge.

Overall, what we call pharma the top Indian 10-12 players we saw very bad results from one player for example but the stock went up today so I think a lot of pessimism baked in and that has been true for the last three years. Is there a turn coming, I think still early days but normally pharma is a good defensive so in challenging times people do retreat to pharma but Indian pharma given the valuations in the growth phase also we saw it did not do so well I would be a little circumspect, not the time right now to get into pharma. Let us wait and watch for a quarter more or two quarters more before we can really jump in again.

What I want to understand in terms of overall given this volatility, inflation, price hikes that we see coming in, what is a sector that one should look at?

Overall, last week we have broken a five week falling range but if you see from 1st October when the big FII selling started in our markets from 17500 we have barely reached 16200 so it has not been a good market for nearly eight months now. It has been a very sideways to declining market, not easy.

Second, there is no catalyst as such, in fact, the catalysts are all negative, 8th June you have the RBI policy where we are expecting a very high rate hike again, basically the 75 bps of rate cut of March 2020 have to be taken out so will it be done in one go or will it be done over June and August given the Fed is going to hike 50 bps on June 10th with a high probability and then again in July Fed is expected to hike I think RBI might go for a 50 to a 75 bps hike on 8th June so that is going to be a word of caution for the markets, it will be a sword hanging and markets will find it difficult to rally strongly on that.

Another big thing is the QT starts from June 1st where the Fed will start rolling off its balance sheet, normalising its balance sheet first at 47.5 billion dollars and going up to 95 billion dollars by September. So that kind of tightening which we have already seen in the markets impacting the markets is going to get exacerbated.

Third is how are the earnings looking, we have been seeing this quarter’s numbers expectations were high and year-on-year numbers look good but if you just see below the bonnet you are seeing margin compression happening and a lack of ability to pass on the pricing coming in. So overall, the scenario is a little tough for equities and this might stay for the rest of the year so we have to be very careful, we are not really suggesting to buy any dips rather regular investments, the SIP investments those can be continued.



READ SOURCE

Leave a Reply

This website uses cookies. By continuing to use this site, you accept our use of cookies.