Come festive season, auto to look up Nitin Raheja

Synopsis

“When the auto sector market leader comes up with its own launches, that should drive further booking and volume growth going forward. Overall with steel and commodity prices starting to ease out and demand continuing to be robust, entering into the festival season, the auto segment should be looking up.”

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“Companies focussed on the domestic market should be doing well. The second is that companies which are focussing on specialty pharma or are creating branded pharma will be the companies which will stand out,” says Nitin Raheja, Head-Discretionary Equities, Julius Baer Wealth Advisors

From a fundamental standpoint, how have you read into the kind of earnings that have come in within the auto space? There are some niggling worries regarding chip issue supply as well as raw material headwinds. Is there potential at the current levels when it comes to auto?

In the auto space, in the two-wheeler space, demand has been a little constrained, led by a weak rural economy which should hopefully change once we have had good monsoons and hopefully that should change in a few months from now. However, the demand for the heavy commercial vehicle segments and the passenger car vehicle segment has remained strong. Unfortunately, initially they were hit by supply chain issues, mainly led by chip supply and then there was raw material inflation. All of that seems to be settling down and demand continues to remain robust.

We are going to see the market leader come up with its new launches, which for the last many years was missing. When the market leader comes up with its own launches, that should drive further booking and volume growth happening. Overall with steel and commodity prices starting to ease out and demand continuing to be robust, entering the festival season, auto should be looking up.

Smart Talk


What is your outlook when it comes to pharma majors that will be coming out with their earnings today? What are you pencilling when it comes to domestic sales across the globe and in the US? What do you think the Street wants to hear from both the managements?

If you look at pharma, broadly speaking, the generic business is going to be under pressure, That has been established by the kind of pricing pressure that products have seen out there in the US. Almost everybody who has just basing it on vanilla generics business is going to find that pressure happening there.

What is going to stand out for us and is going to be two things; companies focussed on the domestic market should be doing well. The second is that companies which are focussing on specialty pharma or are creating branded pharma will be the companies which will stand out. These are the two areas that one should be focussing on.

On private banks

In the case of

, there was huge undervaluation that had built up but personally, my view is that as credit growth picks up, some of these larger banks that have gained market share and also profitability because they have been able to build up deposits and are considerably lower priced vis-à-vis the tier II banks. Already, a lot of money has flowed out in the form of FPIs selling. If FPI selling were to start easing, then the overall banking sector would benefit and within that, top tier banks would be direct beneficiaries because they have seen big valuation contraction as far as their multiples go.


What is your take regarding the entire realty space?

In realty, we have seen concentration in some of the large players so far. But from a business perspective, there is this whole shift happening from the hands of a few large developers. I would not be surprised if you do see some element of investment happening in some of these names purely because valuation differential will make them attractive because as a whole all of them should do well.

If the entire real estate pack is likely to do well, would that mean that the home building materials – whether it is cement, consumer durables, pipes, wires or cables are likely to be good investment bets?

Absolutely. We are very bullish on the entire building material space. We think that it is also a cleaner way to play the whole realty pack as such. What they had seen in the last quarter was the impact of very high raw material prices but the initial results that have come – whether it has been the cement players, the ceramic or the tile guys – seem to have managed the cost pressures very well. The whole space is in for a long period of growth and they should do very well over the next many years.

What is your outlook on the consumption related sectors?

The entire retail space should do well. Of course, within retail also, we are seeing that mass retail catering to the tier-2, tier-3 cities is seeing some element of pressure due to the impact of inflation.Generally speaking, when inflation is high, the lower rung of income earners are hit most and so anybody who is catering to the tier-3, tier-4 cities are probably going to see some sort of pressure and are seeing some sort of pressure as far as demand is concerned.

The urban centric, the tier-1, tier-2 cities are doing extremely well. Rural is a laggard as such. So one has to be very stock specific and selective in terms of growth in case of consumer stocks.

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