Given severe under-performance, Indian market more likely to move up after Budget: Sandip Sabharwal

“In India, unless and until they actually do some drastic changes on taxation which will be taken very negatively and which reduces the tax return of equities, I do not see it impacting negatively. As this is the last Budget before general elections of next year, it might be taken up as a means to put some more money in the pockets of consumers via changes on the taxation brackets,” says Sandip Sabharwal, asksandipsabharwal.com.

Cipla and Dr Reddy numbers have been a miss, especially Cipla, but brokerages are still maintaining outperform on them. Are we at that turn where the worst of the bad news is behind us, the Covid sugar rush is over and for FY24 and FY25 these stocks could incrementally have different earnings trajectory?
Cipla has done well for itself in terms of performance. It did well for several quarters. The last couple of quarters have been disappointing on earnings and I think that has led to stock price stagnation. It could continue for some time. I do not see a big selloff but I do not see any big upside in the near term.

Dr Reddy’s obviously strong earnings were driven by some particular products which actually makes the pharma industry very tough to analyse as specific products in specific quarters drives earnings but that is well placed at this price. The stock is cheap relative to fundamentals. There is upside in Dr Reddy’s although it might not be very huge. I would think there is a decent upside for the next one year

Tata Motors numbers are a beat on all counts but net zero debt guidance has been pushed back a little bit. That is something the market has already anticipated.
Yes that is known. How can a company with Rs 85,000-crore debt suddenly go to zero debt? So they had some aspirational levels which were not achieved but directionally I think things have turned around, the beat on earnings is very-very significant. So the critical point for Tata Motors always was that the operating leverage is so huge that once the turnaround happens and if it sustains, then the profits which come will be so large that the stock becomes suddenly very cheap.

Now most analysts have projections of Rs 30 to 50 EPS for next year and the stock is cheap. We have bought into Tata Motors after a long time in the first half of January and there could be significant upsides over the next two years.

What is a new independent addition to the portfolio? Did you sell Mahindra and buy Tata Motors or is this an independent position you have added and you still hold M&M?
I am not selling Mahindra. I think that company has got so much going for it, their product profile is so good. It still trades at valuations which are cheap relative to fundamentals and farm equipment business actually picking up delivering profits could be an additional kicker. So I do not see myself selling M&M anytime soon unless and until either the stock runs up too much or the company starts disappointing.

Do you think the Budget event could be a big outlier and move the market?
I think given the severe under-performance we have seen the probability that we move higher after the Budget is much greater given the global context. Globally markets have shown great resilience even after you saw job cuts, disappointing earnings, etc. Things have picked up because the overall outlook is turning towards a soft landing kind of thing. Now, in India, unless and until they actually do some drastic changes on taxation which will be taken very negatively and which reduces the tax return of equities, I do not see it impacting negatively.

As this is the last Budget before general elections of next year, it might be taken up as a means to put some more money in the pockets of consumers via changes on the taxation brackets. Let us see how that goes.

Number one, the long term taxes which currently are at 10% goes to 15% in line with short term what happens in that case?
So long term same as short term makes no sense. So I do not think that will happen. If at all what has been talked off has been that equities enjoy a special status where the long term is calculated only for one year whereas for all other asset classes, it is much longer so whether everything will be brought at par. So if it is brought at par some traders might become negative but I do not see it as a major negative as such.

We are in an uptrend in terms of economy, in a high growth mode. If the duration of long term is changed from one year to two years, where not by choice, but by force, if you have to hold stocks for more than a year, could this actually be a blessing in disguise?
Yes, it is not negative, it is a change. If all asset classes come at par, you need simplifications of tax laws in any case. If that happens and if there is some knee-jerk reaction due to that, it should be an opportunity to buy. If they increase the overall tax level then on a post-tax basis equity returns come down and that could have slightly more longer to impact although that will also get taken out if the economy does well.

You have got Zomato once again available for less than 50 bucks a share, down by 8.5%. Would you be a buyer at this price?
I think the recent fall in Zomato started after Swiggy came out with its previous year numbers which showed a huge increase in losses and on top of that, we had news of layoffs happening. In a growth industry, if these companies are having to lay off, then that raises concerns on growth. I would wait it out and see how the next couple of quarters go.