Bullish on these 3 Budget themed stocks: Pankaj Sharma
“Since this is going to be the last full-fledged budget for the government, there could be a lot of interesting takeaways”
What could the cabinet nod for FDI in single brand retail mean for some of the other listed players, the likes of Mandhana, even a Page for instance, which is a big supplier to a multinational brands? Or for that matter, an Arvind which is bringing in so many of these MNC brands into the country?
Overall this is a good thing for people who have very strong on-the-ground presence because anyone who is coming from outside unless it is someone like Ikea or someone who is very confident about making an impact on its own, is always going to find it a challenge as they would have to set up the entire thing including a distribution network, logistic, retail presence etc, on its own and hence the local partners which are strong would always be required and would always be needed.
And if there is a confidence among guys who are coming from outside that there is someone who they can partner with and that will be a long lasting relationship and a sustainable model. I really do not see that there would be any problem for some of the local guys. But yes, it opens up the space and you would always see in this kind of a situation, in three to five years, the landscape might change completely. The people who are currently leaders might be in trouble for some reasons which are related with either their own incompetencies and how the market would evolve but there is also a very realistic possibility that some of the new players would emerge who would benefit from this development.
Overall, I do not see this as a very negative thing for some of the local players. If they are really prepared to benefit from this opportunity, then there is a lot of scope for them.
Stepping into the budget and given the government’s renewed attention towards pushing the rural economy, what are the three stock stories?
Not just rural, I would expect that since this is going to be the last full fledged budget for the government, there could be a lot of interesting takeaways for even some of the spending focussed sectors including the sops and benefits for the middle class and some of the tax cuts which might happen.
I believe yes rural is going to be a very important theme and typically someone like Hero MotoCorp could be a big beneficiary of that. Some of the smaller names in midcap space which are linked to the agri spending including the pesticides and insecticides names and also the tractor names like Mahindra & Mahindra. I would believe that rural is going to be an important theme in the budget. But not just rural, there are other spending focussed sectors that are going to benefit from the budget. It looks like as of now names like Hero MotoCorp, Mahindra and some of these pesticides companies could be beneficiaries of the budget.
Why are branded retail players in India going higher there is competition? There is threat of online retail, there is mass discount which is available if you try and shop a piece of merchandise. I do not understand how the business is evolving because profitability is under pressure, competition is high and yet these stocks are flying high?
Yes. Some of these names which are exposed to oil and gas sectors like Alphageo and others they actually move on how the crude is moving and a company like Aban Offshore, which is very much dependent on how the crude prices outlook look like. This is the same thing which happened in the branded retail space also. Of course, there are specific problems and sectors might be struggling and companies might be having challenges but the overall consumption theme is so strong that people think that someday these guys would be in a better shape and they will make money.
This is something which investors would play because at this time you would see that what else is doing well other than consumption is very difficult to see and that is probably helping this space.
But in terms of specific problems with many of these companies and the sector per se, competition, lower profitability and these kind of issues are not going to change or not going to transform immediately but the overriding consumption theme is so strong that people are still interested in these names and investors are still liking these names.
Anything that you are keenly looking forward to from the earning season wherein you think the beta of rebound in Q3 is going to be higher as opposed to some of the other sectors?
It would be interesting to see what is happening in the E&C space. Of course, the leader is L&T. We have seen a lot of flurry of order inflows in last six weeks or so. Lot of new order announcements have come in and this is also responsible for L&T crossing 1300 mark after a while. The second quarter results were bad in terms of a huge cut in order inflow guidance but in last six to eight weeks, we are seeing that there are signs of revival in terms of new order inflow announcement. If that continues and if third quarter numbers are reasonable, there is a possibility of this stock doing further up in next three to six months.