Time to invest in high dividend cos; MNCs & PSUs may be the best bets: Pashupati Advani

"As the worst seems to be over for the market, investors have to look at sectors we cannot do without. So one has to be selective. India has always been a stock selective market and within those sectors, you have to choose stocks and hope for the best. That is the way to play it," says Pashupati Advani, Founder, Global Foray

10% plus on the market from the recent low. Is this as good as it gets for the year?
Majority of the seem to have got this mini rally wrong. I do not know what to do at this point. For a change, I am totally perplexed because on the one hand, there is China rattling sabres with Taiwan and the President has just called for the Chinese ambassador and on the other hand, most markets seem to be powering ahead. So basically this is a win-win-win situation, if the Chinese will listen to the Americans, then the market will go up but something tells me they are not going to listen. They are quite stubborn as we all know.

So what are you doing in this environment where we can perhaps argue both ways? The markets are no longer bombed out and cheap but if things turn for the better, they could go higher. But if things turn for the worse, we can go back to recent lows. We are not out of the woods?
Investors have to look at the sectors which we cannot do without. Those, according to me, are things like specialty chemicals and cement which seems to have got a little ahead of itself. Steel is coming back into fashion as is healthcare. Those are the kind of stocks along with the logistics sector that one has to look at. And maybe take a touch into infrastructure also because in that sector also, people are getting back to business and certainly the government has been very aggressive in putting out infrastructure tenders and giving money to the sector and that work continues.

So one has to be selective. India has always been a stock selective market and within those sectors, you have to choose stocks and hope for the best. That is the way to play it.

What is it that you are choosing and betting on?
I am a bit scared. I have been looking at companies with high dividends and that is somewhere where you can definitely be. MNCs are starting to pay high dividends because they want to try and take money out of the country and PSUs also because the government also needs money. Those sectors also can be looked at. We are getting some companies which are giving 4-5% dividend yields which are good. So that is another sector to be looked at.

Where do you stand when it comes to the entire IT space? Owing to the recessionary fears, there seem to be concerns that some of the IT companies might be hit back home. Are you being very selective when it comes to IT?
I actually am not so wild about the IT sector simply because of two or three things; one is the rupee is getting beaten and every time it gets to 80, it gets pulled back again to 78 and changes. Obviously the government is supporting it. So IT is not going to get that windfall of the exchange rate.

Secondly, a lot of IT jobs are going back to the countries which were issuing them because they want to employ people and that is not good for our people.

The third point is that it is not easy to get visas to send people to those countries so generally there are bottlenecks in that industry. Plus the business models are changing. Maybe two, three IT companies are above it, the TCSs of this world are above it. But midcap IT is going to have some issues trying to get penetration into countries which today have business and which have slowed down.

M&M came out with their quarterly numbers and it was a bit of a miss and they have said that going forward their margins are likely to improve but they are grappling with the semiconductor shortage issues. Any views on the auto space, have you read into the numbers, do you believe it is going to be a smooth ride or there are going to be a lot of bumps along the way?
I think bumps for the simple reason that a) the auto sector is suffering from this chip shortage issue; b) more importantly, with rates going up, the cost of financing is going to go up also. That is going to stop a bunch of people who are on the margin from purchases of new cars. In the replacement part industry, the tyre industry it will have some effect. So we are seeing the tyre companies doing well, despite this because people are replacing tyres rather than buying new cars.

So stuff like that is going on and we might as well take advantage of it. But I am not super bullish on the auto industry because the results are all over the place and we saw, for example, Tata Motors results last week. The China situation has kind of hit them and they had to take some provision.

We always discuss how urban consumption seems to be the go-to thing right now – be it Vedant Fashions, be it PVR. Some of these high value paint companies as well or for that matter. What is your thought and would you be brave enough to add positions or buy any of these names afresh?
The high cost paint companies are actually expensive but the reality is that the real estate sector is going to slow down a little bit again because of high interest rates which is going to affect people buying homes and therefore people are going to be stuck in their existing homes and start to refurbish. That is good for paint industry, faucets, sinks, plywood and all the things that go in and maybe in that cement as well because I am seeing a lot of trend of people beginning to do their homes up rather than moving into new homes.

...from within the QSR space, multiplexes, Vedant Fashions?
People are going out like there is no tomorrow. It is almost unimaginable, you do not see masks selling any more. I carry one in my pocket. I do not think I have actually used it but I keep it just in case some place decided to put a notice on the wall. It is like there is no Covid around, which is not true.

People are beginning to go to movie halls again and QSR restaurants as well and that is also going to obviously hit the delivery market because people want to get out rather than eating the food at home. As a trend, that is also exciting.

Lupin came out with an absolutely disappointing set of numbers. The margins are at 4% and yet the stock has gone up!
I think it has got very little float and actually trades in a world of its own. I do not think it is largely followed also. But Lupin keeps having interesting news come out which pushes it up. So maybe there is more behind these results and you will suddenly see an announcement maybe next week which is why the stock has probably gone up today.

What about the defence space? I know it is a fairly niche sector but there has been a lot of focus from the government on the Make in India initiative. We have been speaking with a lot of companies as well who have been rather optimistic about their order inflows and the execution going forward. Do you like anything here?
I think for the economy to go into next year, the government has to invest in the Make in India programme and defence is an easy place to do it so yes one should be picking out good defence stocks particularly if they got products that have a long tail and I think that is what we are kind of looking for. You mentioned BEL. BEL is actually going to split (00:29) I saw next week so I am surprised that it has gone down, maybe they expected the split to be larger. I actually like BEML which has gone off from the lows. It has done pretty okay but I actually think that they have got a long tail technology which actually make sense so yes it is an interesting sector but again you have to look for the ones that are not making too much money otherwise the government will find a different way to spend it.

What the outlook is on Bharti Airtel, they will be coming out with their numbers next week and the Street will closely be eyeing it. What are you expecting?
Well they seem to have fitted in the sweet spot between Jio and Vodafone-Idea in terms of the spending and the positioning and all the telcos are getting some help from the government when their ARPUs are increasing. So this is a long steady upward move with very little insight but they are managing their cash flows well and are investing what they think will take them to the next level. They are the best positioned because again Reliance Jio is not a separate company, it is part of Reliance whereas Bharti Airtel is clean in the sense it is only a telco. People should be reasonably comfortable owing that stock particularly if they are looking at increasing their exposure to India.