In an interview to CNBCTV18, Gautam Trivedi, co-founder & managing partner of Nepean Capital, said, there would not be any significant impact of budget announcements on immediate consumption.
Talking about the rally seen in midcaps he said that there are over 150 midcap companies that seem to be operating in a different zone from the rest of the country. “They have been compounders, not just in stock price but also significantly in terms of profit and topline. For example names in chemical space like Navin Fluorine International, Aarti Industries and recently listed Fine Organics Industries or other names like Relaxo Footwear, GMM Pfaudler, KEI Industries and the list goes on and a bunch of midcap companies that continue to remain compounders much like their peers in the largecap space.
So, it is time to roll up sleeves and find a bottom-up interesting midcap companies, he said, adding that there are plenty to choose from.
When asked about expectations from monetary policy, Trivedi said, “The RBI should cut rates further but having said that I am concerned about why the transmission is not happening and at some point that has to boil down to the end consumer and we are still not seeing evidence of that. So my real concern is not so much as the rate cut but the transmission and I am not sure what the government or the RBI can do to fix that.”
Talking about OMCs and auto sales, he said, “The turnout of auto companies in Auto Expo 2020 has been one of the weakest in recent times. So, as a result it is unfortunate and maybe a part of it is got to do with the Coronavirus as people are staying away from crowded places but the fact is the overall demand has been so tepid in the market over the past 18-24 months.”
“The impact of that on oil marketing companies (OMCs) is there to some extent but the fact is there is a huge population of cars out there already that are consuming petroleum products. So, I don’t think the auto sales alone would have an impact on the performance of OMCs, it would be very much linked to international price of crude oil,” Trivedi added.
We have not seen any significant pick-up yet in auto demand. In fact, one is seeing more auto loans getting rejected than ever before, added Trivedi.
Sectors specific, when asked about telecom space, he said “The mobile companies finally start to raise rates and as a result ARPUs will start edging up. But we are still not at a stage where the ARPU is high enough for a Vodafone-Idea to survive. So, not sure how the math works in each of the companies.”
Cement is also a mystery because of the fact that real estate which accounts for 2/3rd of cement consumption has been struggling with the exception of commercial real estate space, which is doing reasonably well. So, confused as to why cement prices have held up and why the stocks have done well, he said, adding that the upside to cement companies look capped from hereon because the measures taken by the government in the Budget are more medium to long-term.
Talking about IT space, he said, “Still prefer midcap IT to largecap IT because they have seen significantly higher growth rates. It’s not that the largecaps haven’t done well; TCS over the last 10 years has done significantly well and outperform Infosys as well. So, there is merit in buying TCS even at high valuation but at the same time the midcap peers are also catching up and doing reasonably well. Mphasis also an interesting story now that Blackstone behind it. So there is opportunity within the midcap IT space more than there is withing the largecaps,” Trivedi further added.
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