I hold stocks of many big banks. Experts are contemplating a rate hike soon. What should be my strategy now?
It is true that there are high chances of a further increase in interest rates due to inflationary concerns. Consequently, there might be some short-term sentimental impact on banking stocks. However, this weakness should be used to buy into the sector, considering its long-term attractive fundamentals. Efficient mid-sized public and private sector banks could be invested into during this weakness.
I read a report by a prominent broking house on media sector. It predicted that the sector will see a compounded annual growth rate of 10 per cent for the next five years. With an investment horizon of two-three years, which stocks should I consider among production houses, television , film and print?
A rapidly growing economy benefits a cross-spectrum of businesses, including media. It is suggested that businesses, which have low volatility, low capital intensity, higher cash flows, a strong balance sheet and an established track record, should be considered for investment. With these parameters in mind, investors can consider investing in content providers, special effect service providers, TV channels and print.
Recently, I heard the chief investment officer of a large mutual fund house saying he was bullish on the pharmaceutical sector. I do not understand how Indian companies grow in a scenario where they cannot innovate. Most Indian companies are selling their businesses to foreign majors. What is your outlook on the sector?
The pharmaceutical sector has been one of the most consistent performers fundamentally, and, therefore, the scrips have performed well on bourses, too. This consistency is a result of cost efficiency, strength in generics, optimal business mix, strong distribution network and close co-operation with global majors. Moreover, most Indian companies spend 5-10 per cent of their turnover on research and development, which is in line with global standards. Bulk of the research activity is focused on generic research as opposed to basic research.
Global thrust on affordable medicines has also opened up huge opportunities for generic companies, thus vindicating the stand of Indian companies. Global majors, therefore, are changing their business mix for a significant contribution from generics.
Strength in generics, coupled with strong presence in the Indian formulations markets, makes Indian companies attractive acquisition targets. Prices being paid by global majors for the buyouts are also attractive enough to justify a selloff. Such buyouts are not just limited to pharmaceuticals and India, but hold true across sectors globally, too.
The outlook on the sector, fundamentally, continues to be promising. Investors will do well if they invest in the sector on declines.
I trade in stocks regularly. Companies will soon start declaring their quarterly results. What factors should investors keep in mind during the result season?
Last financial year seemed quite positive, as the comparison was with a low base. As the low-base effect wears off this time, men will be differentiated from boys. Only companies with proactive managements, effective and efficient business models, strong distribution networks and robust financials will report strong numbers. Investors are advised to focus on volume growth numbers, improvement in realisations and control on costs. Companies capable of consistent improvement on these fronts will emerge as winners.
The writer is the Managing Director & Principal Portfolio Manager, Capital Portfolio Advisors. Send your queries to yourmoney@bsmail.in
