Shibani Sircar Kurian on what to buy in metal and pharma - Economic Times - Financial Daily News Site

Shibani Sircar Kurian on what to buy in metal and pharma – Economic Times

“We are in a rising interest rate environment and we will see interest rate hikes over the next few policy meetings but it is unlikely that RBI will be very stringent in terms of the pace of rate hikes over the rest of the year, especially in the second half when inflation starts to moderate,” says Shibani Sircar Kurian, Fund Manager & Head -Equity Research, ESG Coordinator, Kotak Mahindra Asset Management



Recently the finance secretary said that what the government and the RBI have done so far to try and balance the fisc as well as monetary policy is going to be enough. So somewhere there is an indication that after that 40 bps hike, we are not going to see the RBI move immediately, but definitely there will be a backlog of further interest rate hikes coming in. Does the market need to work with higher interest rate trajectory?
Absolutely. We cannot really run away from the fact that the interest rate cycle has turned. Prior to Covid, the repo rate was at about 5.15% and the immediate target for RBI seems to be to normalise back to that level.

The inflation trajectory is likely to remain elevated at a headline level at least over the next few months and therefore we believe that some of these rate hikes will be frontloaded in nature.

Both the government from the fiscal side as well as RBI from the monetary policy side are working together in tandem to ensure that inflation does not run away and therefore we believe that towards the second half of the year, we will start seeing some moderation in terms of headline inflation levels which would give RBI the required respite that interest rates need not be hiked in a very sharp manner.

What we are really saying is that yes, we are in a rising interest rate environment and we will see interest rate hikes over the next few policy meetings but it is unlikely that RBI will be very stringent in terms of the pace of rate hikes over the rest of the year, especially in the second half when inflation starts to moderate.

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What about ? It is holding one end of the market though it has cooled off considerably from the highest point of the trading session. As far as the commodity cycle is concerned, have we already seen the worst and the peak of the commodity prices or is this likely to continue for the rest of the year as well?
Unfortunately, I will not be able to comment on Reliance specifically. However, what we are really seeing from oil and gas as a sector is that the trends in terms of refining margins have been moving up and refining margins are far ahead of averages. That bodes positively for some of these companies in the sector.
Where oil is specifically concerned, given the current situation and also that there has been under investment in the sector in terms of building capacity, oil prices could stay elevated for some time. Therefore, refining margins could stay elevated for a period of time and that bodes well for some of these companies.

Overall, in the sector, oil prices moving up and staying up is positive for upstream companies and that should also reflect in terms of near term earnings trajectory.

Coming to the metals pack and in terms of commodities, let us split it up into two segments. The segment is very high in terms of cyclicality and there are significant global risks. The strength that we had seen in terms of commodity prices has been on the back of supply shortages and what is happening with Ukraine and Russia.

From a growth perspective, when one starts seeing growth moderating, especially where China is concerned, that does have an impact in terms of prices and also some of the measures that have been taken domestically in order to control commodity costs.

At this point in time, our preference within the metal pack is for nonferrous over ferrous. In the case of ferrous metals, we believe there is going to be some degree of volatility over a period of time unless and until there is significant policy push from China to revive demand we will possibly see prices having topped out.

Where do you stand when it comes to the pharma basket in light of the overall valuation conundrum? Do you believe that one should only be looking at cherry picking within the largecaps or is there a lot of opportunity across the pharma space?
As far as pharma is concerned, we have been extremely stock specific in nature. In Q4, pharma companies have continued to witness inflationary as well as US pricing pressure, resulting in muted outlook and growth.

However, when we look at pharma incrementally, especially where Indian domestic formulations are concerned, we believe that growth should start to pick up. Some of the impact in terms of inflationary input cost pressures will partly be offset by price increases and therefore domestic formulations is a segment we are positive on.

As far as the US generics market is concerned, after price erosion over the last few years, could possibly see over the next few quarters some degree of stability coming through. However, we would be very stock specific and look at companies which have a strong approval pipeline and therefore the ability to continue on the growth path. Speciality pharma names or companies which have presence within speciality pharma are also evaluating and have a positive view on.

However, the valuations do appear reasonable but in terms of how the sector is positioned and how we are looking at stocks, we are fairly stock specific and are looking at individual companies and evaluating them.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)

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