Expect upside in Maruti & Motherson Sumi; Zomato & Nykaa top picks among new age cos: Hemang Jani

I know it is a truncated trading week but nevertheless it is a very big week for our markets. Are there more legs to this rally? Is the washout of a festive season and supply disruptions getting sorted out?
If you see the market patterns, for almost six months now, there has been a very smart rotation at play wherein at different points of time, different sectors are performing. Some sectors are going through a bit of a lull and depending upon the triggers and the developments, certain other sectors are coming into limelight.

Auto has been a performing sector for a while but in the two-wheeler space, the overall performance has not been that great because of the lack of demand. We are not seeing much of an excitement there but the Q2 numbers of most of the companies had indicated that the worst of the chip supply is behind them and gradually we will see the revival in terms of supply. Malaysian chipmakers starting to work at 100% capacity and smart chip issues receding came as a big positive surprise wherein there is a sense that growth will come back.

But one has to bear in mind is that the entire update on the improvement in chips is not going to benefit all the companies across. We feel that companies like Maruti and Motherson Sumi would be a bigger beneficiary of this development whereas the companies which are relying upon the European suppliers like JLR and some other global companies, may not benefit immediately. We like Maruti and Motherson Sumi as top picks both in the OEM and auto ancillary space. There is some more leg in terms of the upside for these two names.

Out of the three listed stocks and it will be four tomorrow, which is the one new tech stock you think should be part of everyone’s long-term portfolio where you may see a hit of 25% but it should be part of the core portfolio like a HDFC Bank in 2000 or Bajaj Finance in 2010?
Even though IPO valuations have been on the higher side, we are seeing that post listing, the overall momentum and the activity around the IPOs have been exceptionally good. We are bringing in a lot of optimism in terms of what sort of growth these companies can throw up over the next three, five, seven years.

Given the sort of dynamics that we are working with, we would really want to focus upon names where at least the basic product or the platform is showing a lot of promise in terms of traction and the management pedigree or the guys who are backing these companies are good. From that perspective, both Zomato and Nykaa are looking pretty promising in terms of what they have built so far. There is no point talking about valuations. It is all about what sort of growth in terms of top line or certain parameters that the market is looking at. We have to have a smaller allocation to these companies if we have to make them part of the portfolio. We have to see how over a period of time, they perform but these two names definitely are looking quite promising in terms of what they have built so far.

Which is your favourite unlock trade? Hotel, hospitality, travel, fashion?
Retail like Aditya Birla Fashion and Trent are the names where we have seen very remarkable growth come back into the system. The sense we are getting is that the growth from here on is going to be much better. So definitely in terms of open up themes, we like these two names.

Apart from that, of course, Indian Hotels has been something that we have been liking a lot and given the fact that in the second half, the general occupancy levels are much better and this time around both in terms of business travel as well as the leisure travel we have seen a good traction. Travel is going to catch up big time over the next two quarters.

In the pre Covid era, hotel stocks were not great wealth creators. Just because Covid has happened and they are making a comeback, some of those stocks are at a new high. Why should we go and buy hotel stocks because they still need capital and the return ratios are cyclical?
A good insight. Our take is that you will see some sort of a consolidation play out in the last 12-15 months of this pandemic wherein smaller hotel units have shut down and the bigger guys have consolidated and a lot of cost controls have happened because of the way things have been for the hospitality sector. There are advantages of a much better positioning in the hospitality space, cost controls and the fact that the way things are going to shape up, the pricing environment and the occupancy levels are going to be much better.

The entire operating leverage could play out over the next 12-18 months and that would lead to some sort of a rerating of the larger players. I agree that it has not been one of the best performing sectors in terms of wealth creation, but from a technical positioning, given the way things have been, we think there is going to be a lot of excitement around the numbers that these companies are going to throw up and that could lead to some sort of a rerating.

We have also started seeing the API focus pharmaceutical stocks make a comeback. How are you approaching this entire sector now that the base effect of Covid will also no longer be at play?
One thing which Covid and the entire sequence of events which happened in the last 12-15 months has taught us is that healthcare and diagnostics are going to be extremely critical from an overall lifestyle perspective. We all may get a little more cautious in terms of how to approach the healthcare and the kind of precautions that we need to take to see that we are a little better prepared to deal with any eventuality that would lead to much higher revenue for both healthcare companies as well as diagnostic companies.

We will see a big traction there. In terms of allocation, we think names like Apollo are going to be important because this is one stock which has done very well even with Covid and without Covid. The way they have expanded I think it is going to be a big beneficiary. Diagnostic is an area where one could see a lot of allocation because of the way things are. One should have a decent amount of allocation for these two sectors in the portfolio.

Why did you tweet about Ipca Labs today morning?
Ipca numbers were not great and the stock has been a laggard for about two quarters. In healthcare and some of these companies where the overall growth is going to be slightly muted, the performance may not be that great. It is a good stock for somebody who wants to play the export and the API part but the overall growth triggers or the excitement factor would be missing in the near term.

One should focus on Sun Pharma or Divi’s where the overall growth visibility is much better or even Gland Pharma where the stock has corrected from Rs 4,000 to Rs 3,500, but the growth visibility and the triggers are much better.