Shibani Sircar Kurian on what to buy in metal and pharma

“Overall, we have been somewhat underweight in terms of allocation on the sector. However, between ferrous and nonferrous, structurally given the demand and supply momentum and dynamics, our preference has been for nonferrous over ferrous,” says Shibani Sircar Kurian, Senior EVP, Fund Manager & Head -Equity Research, Kotak Mahindra Asset Management


Are you excited by China reopening and metals looking decent? Is that something which you would take forward?
Yes, China opening is one factor that is driving metals as a sector and that is something that is reflecting in stock prices as we see today. However, this sector is highly prone to cyclicality. There are many factors at play and China is one of the factors. So as China opens up and also policy starts to focus in terms of getting growth back on track, especially the real estate sector, there could be some amount of demand revival which is positive for the sector.

On the other hand, we cannot ignore the fact that when we look at global macro and GDP growth indicators, that shows that growth is a challenge for large economies around the world which again has a bearing in terms of the overall demand for metals therefore, our view on the sector has been that given that it has significant linkages to global factors which are often difficult to predict and it is prone to high cyclicality as well and that can have a lot of policy impact.

Overall, we have been somewhat underweight in terms of allocation on the sector. However, between ferrous and nonferrous, structurally given the demand and supply momentum and dynamics, our preference has been for nonferrous over ferrous.

Within the ferrous space we are present in select stocks where we believe volume growth prospects are better. Where companies have utilised capital better and have tried to deleverage their balance sheets as well. So it has been pretty stock specific where ferrous is concerned.

What is your take on the pharma space? It has been a stark underperformer in 2022. Will 2023 be different for pharma names?
After the initial euphoria when Covid happened and people believed that the space would see significant amount of improvement, pharma has been a stark underperformer. So when we look at the pharma sector we need to divide it up maybe into three parts; one, companies which derive a significant amount of their demand from the US generics business. Second, companies which are more domestic facing in nature and derive demand from the domestic formulation space and third is the healthcare, hospital segment.
We believe the domestic formulations business is showing double digit growth and within that, there are a few companies which are growing at a faster pace and therefore this is a segment which we continue to remain positive on and here valuations seem to be fairly attractive.

On the US generic side, it was expected that the price erosion that we were seeing for the last few years would abate and that is something that has not played out and therefore there is pressure on pricing and that is impacting stock price movement. It is something that could continue for some time and therefore one has to be fairly stock specific in the US generic segment, looking at companies which have a product pipeline and approval pipeline which will help in terms of growth.

The third segment is healthcare, hospital space. Here again, valuations have moved up but overall this is a segment where we see growth returning fairly strongly. Post Covid, we have seen normalisation in terms of occupancy of beds. Also revenue has started to move up and therefore this is a segment which we remain positive on.

Our approach to pharma has been stock specific but within the space companies with exposure in domestic formulations business and healthcare are the preferred picks.