What is the effect of this gradual decline that is being seen specifically in mid and small cap companies?
Mayuresh Joshi: You need to be a little more specific in the broader markets. They have risen quite significantly and I think the markets will now follow two things. First, within this sector that you are operating in, what is the expected earnings trajectory for the sector as a whole and, within that, how are the large and mid-cap names expected to do? Obviously, the valuations are a little higher. They are moving and trading above key pivot levels quite significantly for a large portion of the space and therefore need to be a little more selective when it comes to the broader end of the market, particularly the small space. capitalization. The focus areas we are likely to have in India are large caps or mid caps, which we are looking at at the moment.
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What is your view on defenses like IT and pharma and the top bets within those two categories?
Mayuresh Joshi: We have also been very selective in both spaces. Within the IT space, midcap IT has been performing extremely well. The feedback has been very supportive, whether on the revenue growth front, both in constant currency and dollar terms, or when it comes to margins. Therefore, they expect margins to hold up over the next few quarters as well and very decent orders are expected to continue even in lieu of lower discretionary spending occurring in both the US and the European zone.
That being said, we will keep our eyes open for any pullback that is likely to occur in stocks like Persistent and Coforge within the mid-cap IT space. Large cap IT had largely put out a better set of numbers than analysts were probably expecting and to that extent the multi-billion dollar deals one really expects are likely to slow down a bit, that could be a reality for large caps IT and could have difficulties. for the next two quarters related to that.
I think a base case turns out to be a very conscious recovery that comes as the US rate cut scenario, which is in the second part of the financial year, starts to play out. So, you have to be very, very selective within the mid-cap IT space.
When it comes to pharma again as a defensive group, the lack of ownership a couple of quarters ago was very stark. Expectations in terms of earnings remain relatively stable because some companies are expected to make many more launches specifically in niche categories for IV. Sun Pharma has a strong pipeline of projects in this regard. Auro Pharma has a strong pipeline, as do Dr Reddy's and Cipla.
Therefore, within this space, we continue to hold stocks like Sun and Cipla in our global portfolios. But within mid-cap stocks, Natco and Torrent Pharma should probably stay on your radar for any kind of pullback. They have a specialized channel regarding paragraph IV. EBITDA margins remain extremely strong.
There is no default as far as plants are concerned and to that extent more launches are also expected in the coming quarters with stability in margins which could mean or tend towards an increase in earnings trajectory over the next two as well years. . Therefore, we continue to hold Cipla, Dr Reddy's and Sun Pharma in our global portfolios. Any pullback in Torrent and Natco can be seen as a buying opportunity.In the latest correction within the small and midcap space, given that they have underperformed the index by 7-8 percentage points in the last few weeks, which are the names that are entering the buy zone?
Mayuresh Joshi: We like the large mid-cap space in the market. One stock we like is that of car battery and accessory manufacturers. In case of a pullback, stocks like Exide or Amara Raja should be seen as buying opportunities.
The kind of expansion that they are doing in terms of their lithium and ion capacities, which is expected in the coming quarters, is going to drive volumes as far as the electric mobility segment is concerned. Obviously, they are serving both the original equipment manufacturers and the aftermarket when it comes to internal combustion engines. So to that extent, as this transition to electric mobility occurs, they will be well equipped on both fronts. Both from an OEM perspective and also from a replacement market perspective. With very stable balance sheets, despite the expansions that are expected to occur, excessive leverage is not expected to accumulate on the balance sheet, meaning that the cash flow improvement will be quite significant in the coming quarters as achieve these milestones.
The second element, obviously, is a stock like Pidilite that we still like. The third quarter results with underlying volume growth of a solid 10%, standalone margins above 25 percent, volume growth expectations held for the sealants segment, the industrial paint segment and the automotive paint segment. construction, which is also almost 20 percent.
I think both segments are expected to skyrocket quite significantly and expectations for both real estate activities are expected to remain very strong, which will cause refinishing demand to return very strongly and therefore volume growth. /value should be quite significant in the coming quarters. .
Input costs have come down and hence margins should be relatively stable and more products are expected to be launched on a selective and calibrated basis in the coming quarters and years as well. Pidilite and battery manufacturers are something we still like.
