Among Covid winners, diagnostic and cement are long-term plays: Aditya Khemani

We would not go back to 100% in a hurry now. It will be a slow gradual uphill journey to 95-100% over the next three-six months, says the Fund Manager, MOAMC.

Can you participate afresh in the market right now? Are there any pockets that you are actively looking at?
The market is closely following Covid recovery. We need to track how the active cases are moving up or down. Active cases have come down, which means we are flattening the Covid curve. That indicates fear in peoples’ minds is coming down. The basis of whatever crisis we were expecting has been the fear in people’s mind. The moment that comes out of people’s minds and people go back to their normal life, you will see the economy bounce back very sharply. Some of the indicators we are already seeing.

I was surprised to see the power demand in the first 15 days of August is up 2.5%. That is a very healthy sign. It indicates the supply side is back in terms of normal. Gas consumption data by Petronet or Gujarat Gas have shown things going back to normal on a YoY basis. That in a way indicates the supply side which is on a comeback is closer to normal again. That indicates the fear in people’s mind is coming down.

Now we need to see what is happening on the demand side. Only when the supply side and demand side come back to normal, you will see economic activity improve. Again on the demand side, Maruti is reporting very healthy growth in terms of secondary volumes. The Eicher order book has gone back to pre-Covid levels. Asian Paints is reporting a 14% growth in June from a paint volume growth.

Company after company, the pace of recovery has surprised everyone including me. Even though there could be a bit of pent up demand in those numbers, we need to take it with a pinch of salt. But nevertheless, the recovery remains well on track. We have come back to 80-85% on the normal run rate from the economy point of view. We would not go back to 100% in a hurry now. It will be a slow gradual uphill journey to 95-100% over the next three-six months.

In terms of the pocket of opportunity over here in the last three-four months, in case I could categorise the market into Covid winners and Covid losers, investor interest seems to be very high in terms of Covid winners sector be it a pharma or IT.

One of the COVID beneficiary segments is the diagnostic space. Can Dr Lal, Thyrocare be looked at even at these levels because this is a long term opportunity?
Diagnostic is a very interesting space. When we go to a doctor, he writes down 10-15 tests, so diagnostics seems to be a very good sector in the longer term. Secondly, what you are seeing in the sector is that a value migration is happening from the small mom and pop diagnostics players to the bigger organised players. That means the organised players can go for a longer period of time at a very healthy rate.

This is a sector where trust is very important from a consumer point of view. It is not very easy to build a new brand for example brands like Dr Lal. It is a 60-70 year old brand and it has taken that long to come to a revenue run rate of 16, 70, 100 crore which goes to tell you how difficult it is to create a new big national player in this space. On the entire space, I will be very positive from a longer term play and we hold some stocks in this space in the portfolios.

What is your view on cement stocks?
Three, four months back, no one thought the pace of recovery would be so fast in the cement sector. In June, July, demand came back to 85-90% of what it was last year. So, the pace of recovery has been very sharp from that point.

Again, cement is a sector cleaner play on the infrastructure side. On the infrastructure side, you do not have too many plays apart from L&T. So, cement becomes a play both on infrastructure as well as the housing side.

I would be relatively positive on the sector from a medium to longer term perspective. You also need to see that in spite of it being a commodity, pricing has held up very well over a longer period of time. The leaders in this space have had a good amount of profitability and their cash flows have been very strong and they are mostly net cash company. They do not have any debt on their balance sheet.

So net-net, cement is a good proxy play in case one has to play recovery both on the infrastructure side as also on the housing side.