Morgan Stanley talking about how despite a sharp re-rating, it is a very constructive space to look at. Would you concur and what do you like?
Sandip Sabharwal: I would think that post this rally most of the stocks are deeply overvalued. So, I would not agree with this statement. Time to look at Nykaa, I mean now things are getting settled, it is a business which still generates cash flow?
Sandip Sabharwal: I would think so because Nykaa is a stock which I always believed will perform at some stage. Now, we are coming at a stage where the company is trying to get some costs under control and we could potentially have some benefits coming to individual taxpayers to boost personal consumption, then Nykaa could actually be a performer. So, I think this could be an interesting stock to have a look at.
What would be your outlook on pharmaceuticals? Where is it that you would find comfort within pharma in light of the fact that valuations are not quite as attractive?
Sandip Sabharwal: Yes, I think the last part is most important because valuations are not as attractive as they were. So, among the stocks we used to have, we sold out Lupin, but we are still holding on to Sun Pharma. The smaller pharma companies I find it tough to evaluate, so many of them can potentially do well but I do not have the bandwidth to go molecule by molecule and evaluate those companies. But I think Sun Pharma is a decent business model, so we are just holding it for the long term.
We are talking about per capita. We are talking about upgrade in lifestyle. All of us now are getting more and more aware about preventive healthcare, all of us can afford better healthcare, we can buy better medicines. Is it a good time now to let us say start buying Indian focused pharma companies? You may look at MNC pharma companies which have a presence in India. You may look at a company like Mankind which is only domestic. Alkem which gets a big business from antibiotics. Cipla very deeply entrenched in India. Unlike US generic companies like let us say Aurobindo Pharma or Lupin, look at the other way around. I mean, why bet on Indian companies benefiting from America? Look at Indian pharma companies which would benefit because of India.
Sandip Sabharwal: The only issue investing in domestic focused pharma companies is that their growth trend rate will be between 7% to 10%. And if they have already outperformed and reached valuations of 30, 40, or 50 times for some companies, then with that kind of growth it is tough to sustain that. The reason why cyclical opportunities are presented where companies which are focused more on exports is that big opportunities come up, sometimes focus on specialties give them some extra profits, etc, so that creates the opportunity in those companies. If I compare SBI versus HDFC Bank, the classic outperformance in HDFC Bank is back. It has gone almost to a year high and it has crawled back all the gains, all the losses it had after that result debacle two quarters ago. Has HDFC Bank finally rediscovered its mojo? Do you think this really could be easy, obvious and a safe trade for the rest of the year?
Sandip Sabharwal: They have recovered their mojo or not time will tell because indications till the last quarter were that it is not there. Now, because it has underperformed so much so there is a large set of investors who are now more comfortable investing in HDFC Bank, although it continues to remain over-owned stock but not as over-owned as it was maybe two-three years back.And if we see the performance of private sector banks vis-à-vis PSU bank, so PSU banks always have a higher risk of greater NPAs overall over the long term whereas most of the private sector retail-focused banks have handled that much better. So, I think this valuation disparity which reduced became very small and now, I think the outperformance of private sector banks has started which I think should continue at least for the next one year.
