Wait for deeper dips before buying: Sabharwal

Consumer demand will be impacted and even on a correction, I would avoid most of the auto, consumer durable or even consumer non durable stocks. But some of these companies with decent order books and execution cycles could be looked at on corrections along pharma and metals, says Sandip Sabharwal, analyst, asksandipsabharwal.com. The market seems a little caught up in macro concerns -- Covid resurgence and earnings. Your view?I don’t think Covid concerns are bothering the market as otherwise, it wouldn’t have rallied for the last three-four days. Last quarter’s results are going to be very good except for some auto stocks which got hit due to rising input prices and also may be some other consumer durables companies. Most managements believe that post lockdown, the bounce-back would be similar to what happened the last time. But it looks like a tough act to follow. Last year, there was no inflation; this year inflationary pressures are very high. Last year, fear was more and the actual number of people who got infected was very less. This time, it is across the board, Extended families, people we know seem to have got this infection this time. So, the post Covid bounceback is not going to be as rapid. That will be a challenge for investors. I would not be very gungho on the Indian markets. It is a liquidity fuelled rally globally where the US Fed is making sure that asset prices do not fall before the recovery is entrenched. Once that is achieved, they will cease to be accommodative. People should not be excessively bullish in this market. They should wait for possibly deeper corrections to buy into this market. Coming to the FMCG sector, how are you reading into the quarterly numbers of HUL and Britannia and the volume growth? Is there anything that you would watch out for?The volume growth held up. The challenge for investors is that last quarter’s results will be very good because it was one of the best quarters of Covid recovery. There was virtually no Covid infestation in the country and things were absolutely normal. Now suddenly, we are in a phase where breaks are getting slammed. We must grapple with how to evaluate these results in the context of what is going to happen in the future. Britannia got hit by input price increases and the margin got squeezed. HUL did reasonably well but it will get impacted going ahead because the global Unilever results indicate that inflationary pressure could impact margins over the next two quarters at least. That is something which we will see. Last time, post lockdown, consumer demand bounced back very fast because the actual impact on people was lesser. This time the actual impact is very high. I believe discretionary consumer spending will take a hit because this time, Covid is well spread out both in rural and semi urban and urban areas. Looking at the valuations of most of the consumer companies, it is tough to make a bet on buying these stocks at this stage. We should wait out. We will get them at a better price going forward. What would you buy if the market were to decline from here? Will it be pharma, IT, metals or would you look at newer opportunities? Sandip Sabharwal: IT and pharma is a classic trade and this time metals have joined into that trade because metal prices globally are moving up. Analysts have been upgrading their recommendations, prices etc all the time. IT is a different bet because in IT, there will be a lot of profit impact due to cost increases and the rupee has also appreciated surprisingly over the last couple of weeks. So benefits might not be there for IT companies. Given what is happening around us, a lot of pharma companies will continue to do well. Some like Cadila have an option value built in because of the potential approval of a vaccine at some stage during this year. If that happens, that could be a strong upside. In case of Dr Reddy’s, the Sputnik story could play out. So there are different companies with different stories. Consumer demand will be impacted and even on a correction, I would avoid most of the auto, consumer durable or even consumer non durable stocks. But the investment cycle should still continue and some of the companies with decent order books and execution cycle, could be looked at on corrections along pharma and metals. What is happening with the entire agri commodity basket? Are they good for an accumulate or a buy on dips?Yes. The hard commodities moved up first and the soft commodities caught up. Global sugar prices have gone up and Indian companies do not need a minimum support price from the government to sell sugar. Although we do not have many investable companies in the tea basket, tea prices have also shot up and there could be potentially some investment worthy companies in that space.

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