Wait a quarter or so, then consider buying pharma stocks: Rahul Shah

"If we see earnings momentum back for one or two quarters and then we will see pharma stocks getting rerated. Near term, the challenges remain. An investor with a view of two, two and a half years can start picking up pharma stocks," says Rahul Shah, VP-Equity Advisory, Motilal Oswal Financial Services.

The big news of course is the government removing the export duty on certain steel products and raw materials positive news flow. Is that going to help inventory destocking? Given the domestic prices premium to export parity and weak global demand, will near term challenges still exist so that we do not see a positive move on some of these steel stocks?
We will not see the kind of momentum that we saw on the other way round when the export duty was levied. Most of the steel stocks corrected 10% to 15% at that time.

After the lifting of the export duty, question marks remain over demand. We will not see a momentum in steel stocks. Interestingly, Q2 earnings were also muted. So I do not see that kind of momentum to get built into steel stocks again. Maybe because of the steel duty being rolled back, we might see a 1-2% positive bias on the steel stocks, but nothing much on a higher side. We will see some of the selling pressure coming back on the steel stocks.

What is your outlook on some of the key takeaways from the HUL analyst meet as of now? They are pretty confident that the demand situation is not going to worsen significantly but muted earnings growth is the call of the day for the next few months. Is that alarming or is it pretty much baked into the price?
Whenever we see this kind of a commentary coming up from the management side, we would see some kind of market action but if we look at most of the consumer pack post their earnings of Q2, I think they have been muted. I do not think there will be any major up move in the stocks but demand which was there in Q1 and Q2 is going to remain. As inflation cools off, we will see demand coming back. Near term, the challenge is there but going forward, maybe a quarter later, things might improve for most of the consumer companies.

Given the lows seen in some of the new age tech companies last week, is a decisive trend or change in management mood likely to change the narrative?
I have been bearish on these stocks for quite some time and I would continue still because there is a lot of value in other stocks and other plays. These still may bounce back which we have seen following the global trend with the Nasdaq moving up 6-7% odd in last week.

Till the time they deliver, I do not think there will be any rerating of any of the stocks. There are a lot of other opportunities that one should look at, rather than getting into this new age tech at this juncture.

Last week of course we saw only a 0.5% kind of recovery in Zomato. We have seen quite a bit of recovery from 40-45 odd levels that it had hit. Are you convinced about the Zomato story?
The entire market has moved up from those levels and Zomato rise was in sync with it. We saw lots of stocks coming back, moving 30%-35% or more from the levels in June. Coming back to the story, it is a pretty long play. Near term, the challenges will remain. If we are looking at one or two quarters, then things look a little bit difficult. But if you look at a three-four year story, then it is a unique listed player, one which we should look at and if we have a deep pockets to allocate it. We should look at Zomato for a four-five year play from here.

What about Delhivery? This week, that stock is very much in focus as the lock-in is lifting?
Rahul Shah: In the new age businesses, in the near term, we will not see any kind of a big momentum coming back. I am bearish on the stock. So I would stay away from this company at least and if we have to look at the entire new age businesses, I think Zomato is one of the better bets vis-à-vis other stocks. Stay away from Delhivery as well.

Escorts and HUL both had their analyst meeting. HUL on Friday and Escorts over the weekend. Do you track both of them, none of them, one of them?
I have been tracking Escorts closely for quite some time and near term challenges will be there. The management’s vision and all was quite good but in the near term, we need to focus on the tractor businesses, where we have seen other full-fledged player, M&M, firing up in all the segment. If I have to pick among the sectors from the stock, then I would go for M&M rather than Escorts. I do not see any great exciting story coming up in the next six months to a year. I would avoid Escorts at this juncture.

Do you believe there is likely to be a glimmer of hope after a spate of flops for the multiplex industry?
I think yes. Post Covid, we were expecting that the multiplex stocks should be in favour and we will see momentum coming back in terms of the earnings of the exhibition businesses. But it was a muted couple of quarters. Slowly and steadily, things will start picking up. I feel that is a unique story and unique model for all the things in the listed space and we have almost a monopoly kind of a situation. So, one should have allocation towards both the stocks in the portfolio.

Avoid pharma for now, considering that besides for Cipla and Sun Pharma, perhaps the news flow is still pretty ambiguous?
The most important part is the numbers which were reported in Q2. It has been pretty muted for most of the pharma companies except for Sun Pharma. The pharma companies have corrected decently enough from their 12-18 month highs. I think there will be a little bit more time-wise correction. The earnings momentum has to be back for one or two quarters and then we will see stocks getting rerated. So near term, the challenges remain.

If you are an investor with a view of two, two and a half years then yes, one should start picking up pharma stocks or I think maybe a quarter or so and then one should look at buying them.