Pharma largecaps may do better in 2021

Largecap pharma stocks will do better than the mid and smallcaps in the next one year going forward, says Deepak Shenoy, Founder, Capital Mind.

On Sun Pharma
We have not tracked Sun for a while now. We used to be owners but then the stock did not do much at all and so I would not be able to comment specifically on this. We have got some of their competitors. In general, I like pharma as a pick but one has to be selective.

The large caps will do better than the mid and small caps in the next one year going forward. Part of this has to happen with resumed Covid impact, a lot of elective procedures at hospitals have been stopped because of the Covid-related fear of going to hospitals and that is going to iron out next year. I would be with some of the larger caps here and hopefully we can see across-the-board pharma rallying next year and hospitals as well.

On hotel stocks
I do not think so. There is no travel to speak of and so we are jumping the gun in terms of some of these hotels which depend on tourism and traffic and air traffic specially to resume in a meaningful way and that has not happened. A lot of hope is running on these stocks and you will probably miss another 20% move before we get some qualified data.

I will wait for that because we do not know the kind of damage that is already done to their businesses when hotels have not been used. We might see repair costs coming in, we might see a change in their business model going forward. I would hold on to these stocks until we have got enough data both from the companies and revival of tourism with foreign tourists coming in and all of that stuff. That is when I would be more confident of getting back to hotels.

On power space
I like power. There is a company called ABB Power India which is now owned by Hitachi. That is an interesting company. Tata Power is quite amazing. Three years ago, they were willing to sell the company for even one rupee if somebody just took over the debt and today it is operationally quite strong. So things have changed quite dramatically in the power sector. Tata Power will do well. I am positive overall on the space and I think there will be a lot more demand both from power transmission and to a smaller extent power generation.

All these sectors will do really well in the next two, three years but we will have to give it some time. It is not going to be suddenly as juicy as pharma was in the last two or three months.

On FMCG stocks
A large part of FMCG is overvalued. In the last two quarters, a lot of the operational costs have not been high thanks to cuts in advertising and travel costs. So volume growth and cost reduction have helped margins. I do not think that will be the case going forward. When things start coming back to normal, the advertising cost will go up quite substantially because their competition will also be advertising and demand will normalise. We have had people spending on certain things because they cannot spend on other things and when those other things like travel, hotels, restaurants, malls come back into play, the spending on FMCG will come down.

So, in the short-term, it would be a trading call based on charts on a stock by stock basis, but if you are looking one or two years down the line, you might want to be a little careful with the amount you are paying for some of these companies. My feeling is it is not a great investment from a one or two-year perspective.