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    Want value buys? Go for oil & gas and auto stocks

    Synopsis

    The best way to take exposure to the pharma sector is to buy top five or six pharma companies. The sector even now is available fairly cheap, says Rajat Sharma.

    Rajat Sharma-Sana Sec-1200ETMarkets.com
    I am invested quite heavily into gilts right now and given the valuations for the market, I feel it is a very good space to be in if your intention is to preserve at least a part of the capital, says Rajat Sharma, Founder & CEO, Sana Securities.

    On vaccine news & hopes of a solid recovery next year
    Irrespective of all the positive news that we keep hearing on the vaccine, the way these markets have moved up, has taken me by surprise, especially the way liquidity keeps driving stock prices higher and higher. We may actually be trading far higher than where we should be trading. Right now, there is this talk of financials doing really well. I am still very sceptical about whether this is sustainable going forward for the next one or two years.

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    At the same time, there are stocks which are available at extremely cheap valuations compared to overall valuations of the market. We have purchased a lot of these stocks in the oil and gas space, ONGC particularly. Four big things are happening to the stock. First, as markets are opening up, crude oil consumption is going to rise and we have seen that happening.

    Also, ONGC benefits from the government stand on floor price mechanism because even last year they had to sell natural gas below their production cost. Now there is some talk from the government which seems very positive. Sooner than later, there will be some floor price mechanism that is benefiting ONGC.

    Overall, the oil and gas as a sector is trading extremely cheap and now with Joe Biden as President in the US, he is expected to have a strong stance on fracking and that will give further impetus to crude prices. In this extremely overvalued market, oil and gas is one space where valuations are still extremely cheap and that is where we are focussing on.

    On expectations from the monetary policy
    The last time MPC had been very accommodating with not just their rate stance but in terms of buying government bonds from the open market. I do not think they are going to do anything to the rates. They would probably have more comforting commentary going forward in terms of maintaining not just the rates but also to make sure that bond prices or the yields do not keep running higher. Personally I am invested quite heavily into gilts right now and given the valuations for the market, I feel it is a very good space to be in if your intention was to preserve at least a part of the capital.


    On auto stocks
    The base will remain low for the next four to six quarters because auto sales just like oil and gas, really struggled in the last one year when there was a complete lockdown. Even stocks like Maruti Suzuki are still trading at where they were trading in 2017! The valuation for a Maruti Suzuki looks expensive but that is purely because the earnings have been really weak and as the demand revives and the earnings improve, these stocks will no longer look as expensive as they do right now. In addition to oil and gas, auto stocks are definitely something you can add to your portfolio.

    On pharma space
    I believe the right time to buy pharma was two-three years back because that is when a lot of these pharma stocks were trading at extremely cheap valuations. I do not much understand the nitty gritties of pharma companies or APIs. I have always believed that the best way to take exposure to the sector is to stagger your investments between five to six good pharma companies and to that extent, the sector will do well because who knows who comes up with a magic formula and there would be a lot of ancillaries to a main vaccine for Covid.

    The best way to take exposure to the pharma sector is to buy top five or six pharma companies and it has paid off for me for the last two years. I do not think I am capable of picking up that one pharma stock saying this is the stock which will come up with a vaccine or something big will happen in this space. The sector even now is available fairly cheap. So, stagger your investments among the top five-seven pharma companies.

    On realty as a contra play
    Rajat Sharma: In these kind of markets where there is so much liquidity, everything looks like it is a good play but I fail to understand why real estate should do well. Who is buying properties at this time despite a fall in prices across the board? Across both residential and commercial spaces and pretty much everywhere, prices have been falling but I do not see a big revival for the real estate sector going forward because there is so much supply in this sector and that has really never been taken away. I do not think I have spotted anything in the real estate space where I can go ahead and buy that.



    ( Originally published on Dec 03, 2020 )
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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
    The Economic Times

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