Pick up these 5 pharma stocks in August: Sanjiv Bhasin

Cipla, Lupin, Dr Lal PathLabs, Ipca Laboratory and Cadila can turn out to be outperformers, says the Director, IIFL Securities.

Do you still believe there are opportunities for fresh buys in the pharma sector? Are there any stocks that you recommend buying?
Pharma has been the real bench behind the market moving all the way from the 8000 level. It has been three months since pharma regained its mojo after lacking interest for three years. The comeback has been very sharp.

Right now, we are seeing profit booking in pharma and a lot of money going into high beta stocks and sectors which have underperformed. The likes of Titan, Larsen & Toubro, a large part of the PSU stocks are being re-rated. Pharma could consolidate but it is in a large bull market.

We have had three-four large picks which we have done as SIP and they have played out brilliantly. These are Cipla, Lupin, Dr Lal PathLabs, Ipca Laboratory and Cadila. These five had played out. Alembic Pharma is a very strong story but like we said it is going through a consolidation and may actually underperform the index as the high betas -- the banks and others start to catch up. Pharma is in for profit booking for the next week or so, but August will again belong to most of the large cap pharma stocks.

And where do you see opportunities to buy fresh into pharma for those who have completely missed the rally in the last three months?
Again, the basket of five stocks which I had recommended strongly -- Cipla, Lupin, Dr Lal PathLabs, Ipca Laboratory and Cadila. These five should make up all the generic, the lab side and the API contracts. They are very credible names. They have got presence on the Nifty also and on the midcap index and those five can be outperformers. But again there’s a caveat -- July belongs to the bulls. When August starts to get bearish undertones, that is the time to go to pharma.

A lot of people are saying that institutional investors are not active and are worried about valuations. It is the retail guys who are active whether it is Robinhood traders globally or perhaps the work from home or Hobby traders in India. What do you make of this because historically it is said that when retail comes in, it ends with creating market top?
The Robinhood traders are actually laughing their way to the bank and the last two months or three months have belonged to them. I cannot complain because as a brokerage house, we have had our best quarter. The millennial traders have been laughing their way to the bank. The last three months belong to them. There is an inevitable correction which will come but August will belong to the bears and that is the time we will see the shakeout.

But as in any investment class, there will be proverbial profit booking and pain but that is part of the process. So right now let us enjoy the gains as long as they are lasting.

Is there opportunity to buy more into Muthoot and Mannapuram even at these levels?
Last week, if you recall, I told you that my stock for next Diwali is Federal Bank at Rs 50. Muthoot and Mannapuram are the leaders in the gold financing but Federal is taking a large chunk of the share, it will be the biggest bank which will be in gold lending and that is why I am saying keep an eye on it. The stock is up about 15% from last week. I expect this stock to be an outperformer and this business itself is telling you that the relative outperformance continues even though gold is hitting all time highs.

The relative safety of the lenders is increasing as the collateral goes. It is a win-win business for both the lenders only. They have run up a lot and you have to be cautious. I think Federal Bank will steal the case. On the other hand, ICICI Bank itself has given the numbers which are due on Saturday and can see another short covering rally just as in Axis you could see levels closer to Rs 400 by tomorrow evening.

What was your reading of L&T’s earnings? The management itself does not have any clarity on when or how exactly things are going to pan out and are not giving guidance this time?
I thought the numbers were relatively credible in a very tough environment and their biggest problem is handling the labour. But from what I read, they appear very confident that the government capex is rewinding and that rebound will see a lot of order inflows. So L&T is actually going to be one of the very good proxy plays because the recovery rate is strong. Delhi and Bombay are flattening off the curve and L&T could be a very-very good proxy play to the reopening of the economy on the infrastructure side with government spending.

I would like to add two names on the PSU side which again become proxy to that; IGL will be a very good proxy on reopening of the transportation and we know that they have just raised gas prices. The stock has got a 6% dividend yield and it becomes a very good proxy play. Also, NMDC on the PSU side, given that the strong iron ore and steel prices are rebounding becomes a very attractive play with 8% dividend yield. These two stocks along with L&T could be outperformers in the next six months.