I want to start by talking about the pharmaceutical package as a whole, that is, the defensive side. Everyone is looking at that too. There were many moves by Sun Pharma. On the smaller side, we have Orchid Pharma, which is also seeing a move. How do you see the pharmaceutical industry as a package? Is there something specific that appeals to you?
Pramod Amthe: If we look at recent trends, price erosion in the United States appears to be stabilizing. Shortages are occurring and, therefore, price comfort is returning. The best way to play there is Sun Pharma and Aurobindo, which we like. The other trend is that the national outlook for pharmaceutical industry growth looks better for the second half (H2) compared to the first half (H1). The proxy we are trying to use is Torrent and Ajanta. Those are the two names we are analyzing. Therefore, it is evident that the pharmaceutical industry is playing catch-up, as the general environment around these two trends seems positive. We are seeing a couple of improvements, except in Cipla, where we have seen a drop in ratings. The other four names I mentioned would be where our comfort lies.
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What do you think will be the next catalyst, especially for private sector banks like HDFC Bank, for future performance? Do you see that there is greater scope for a requalification of these accountants?
Pramod Amthe: The trade being developed, PSU versus private; CASA, which is definitely in favor of PSUs to mobilize deposits, seems to be playing in its favor and private banks are facing the challenge of mobilizing deposits and thereby extending their credit growth and at the same time NIM expansion seems to be under pressure.
As we have seen in recent times, private banks have been increasing deposit rates to mobilize deposits, which may put pressure on NIM in the near term. Thus, the first signal to take into account is a certain stability in deposit rates or a flexibility in them, so that the cost of funds can be relatively favorable for private banks.
Until then, the taste of the PSU may linger for some time. Within that space, our private banking preference is more for HDFC due to its aggressive branch expansion to mobilize deposits, followed by ICICI Bank, which continues to be a relatively near-term outperformer in the private sector.
Mid and small cap companies have seen an increase. We know that too. Do you think there's a lot of foam right now in that space? Would you be a little cautious or look for something attractive in the mid and small caps at this point?
Pramod Amthe: The outperformance of the Nifty Midcap index has been very strong. It remains the same even if we look at the trajectory of the last one to three months, while the large cap Nifty 50 is still underperforming. Within that, we'll look for more stock ideas from the bottom up. So we feel comfortable in capital expenditure and defense related areas Where, in mid cap companies, we like Thermax or Data Patterns or Concor. These are the names we like in capital and infrastructure spending.
In the automotive and allied sector, we would prefer Ashok Leyland and Bharat Forge, which have not risen compared to the Nifty Midcap Index and within the financial sector, we will look more at Mahindra Finance, which again seems to be participating now and the worst is looking. Therefore, we will be more selective in mid-cap companies. Our analysts have been using current prices to downgrade individual mid-cap stock names. We are still picky about names.
There have been a lot of rumors about rail stocks, the rail package. There has been a government push for railways. In general, do you find that space attractive?
Pramod Amthe: There has been talk of new avenues of growth for railways, although railways themselves have seen strong momentum. Medium-term objectives for the railways, which include 40,000 wagons or maintenance of the new line layout over the next four or five years, have been met. That improves the visibility of the runway for these stocks to grow, maintain high revenue momentum and that comes from the budget and later in the ministerial interviews, it provides substantial comfort and this will generate a higher growth rate to sustain further. one or two years, more in the region of a trajectory of around three or four years. That said, some mid- and small-cap companies have risen much higher. We would still prefer the relatively bigger names there, which is representative of the work, whether Concor or Kalpataru or KEC, which also do a decent number of electrification lines there.
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