Want a little risk in your portfolio? Go for these 3 pharma stocks: Dipan Mehta

It is best to stay away from banks and take a call looking at the credit costs after 30 to 90 days, says the Founder & Director, Elixir Equities.

It is once again only Reliance. The retail business is in the news and they are doing the same thing that they did with their Jio platform. The retail business is getting a clutch of investors, followed by strategic investors.
I do not think this comes as a surprise to anyone and we were always expecting some equity dilution as far as the retail business is concerned and the valuation also is not surprising. It is in line with what analysts and the Street has been pegging for Reliance Retail and it is just a further fund raising exercise which is under way.

It is up to the management as to what percentage of equity dilution they will continue with going ahead and it certainly improves the sentiment as far as Reliance is concerned. The deal with Future Retail was quite attractive from a Reliance standpoint and at a very low cost. They got access to a large retail network and there are great synergies between Reliance Retail and Future Retail assets, cost savings also are possible over there. On the whole, Reliance as a company is on a roll and investors recognise that and which is why I think it has been a leader.

After a lull, may be this particular event may take Reliance back to leadership position. It had been mildly underperforming after these announcements as far as Jio concerned were over and done with and now may be it will come into focus because of Reliance Retail. So it is a great development for Reliance shareholders and we remain positive on Reliance Industries and corrections should not be missed as opportunities to add to Reliance Industries stock.


Do you think Escorts has some more fuel left in the tank considering there is a foreign player and after a gap of many years, tractor is in high demand?
I think so. The outperformance in Escorts may continue for some more time and apart from all the reasons you mentioned, there is a lot of government focus on agriculture and that benefits the agricultural sector and tractors as a whole. Generally in tractors, there is a decent roadmap for further penetration within the segment given the kind of structure in agro markets. At the same time, Escorts has been an outperformer purely on account of the fact that it is trying to gain market share, looking at export markets and has done a lot of internal cost restructuring whereby it has become extremely profitable.

We are now seeing that the company’s monthly sales volumes are significantly higher and it is gaining market share which is always very positive. The balance sheet is of a great quality. Brands are clearly favoured by the consumers and low interest costs will certainly keep on driving auto sales and tractors are included in that. So we are quite positive on Escorts. It is just that our view on the market is slightly negative at this point of time and so I would not want to jump in and buy straight away. Rather we would look for opportunities to buy into Escorts as and when correction takes place.

Which pharma names are on your radar right now?
We are very positive on pharma companies per se and the entire street is positive on pharma. So I will dive straight into the kind of stocks that investors could look at. Again, there is a lot of choice in pharma and depending upon your risk appetite, you could go for the bluest of blue chips like Cipla or Dr Reddy’s and then if you want to have a little bit more risk in your portfolio, companies such as Aurobindo Pharma, Alembic Pharma as well as Ajanta Pharma are quite interesting.

There are a clutch of small cap pharma companies also like Shilpa Medicare or Suven Pharmaceuticals or even Dishman Lab which are quite interesting but they have a high risk return profile and investors need to keep that in mind. But every correction in the market and the pharma sector as a whole should be used as an opportunity to increase exposure to pharma companies.

Pharma is one industry where there is some visibility of earnings and scope for PEs to move up and at the same time, it provides good long term opportunity. We are very positive on pharma and investors should look at increasing their exposure and they have a lot of choice depending upon the risk profile they can choose their stocks over there.

When do you feel we might start to see a little bit more traction coming into the banks?
Bankers have to put up a brave face and they have to reassure their depositors and investors. Otherwise, there is no banking business. But clearly there is a lot of uncertainty around banks. It is not around the Supreme Court judgement about interest on the moratorium but more so with respect to restructuring of loans and that really is a wild card. One does not have a handle on what the NPAs would be as the loans get restructured and then post restructuring as well. So it is going to be a tough call as far as judging what the credit costs are going to be for the banks.

Although a lot of banks are in a strong capital position in the event of a large spike in the NPAs, we do not have the granular details as to what those events could be or what those charges could be. I think it is best to be still a little underweight or at least avoid banks for the time being.

Let this uncertainty play itself out and within the next 60 or 90 days, it would be clear what the credit costs for the banks are post the Covid-19 and moratorium and exactly how the repayment discipline is being maintained. Keeping that in mind, I would be a bit underweight or at least avoid banks. I do not deny that there is valuation comfort, but there is a lot of uncertainty as far as their bottom lines are concerned and even growth in credit may be subdued on account of very slow economic trends.

So on many fronts, banks have to fight. On one hand, they want to increase the loan book and therefore increase their pre-provisioning operating profits and at the same time, credit costs are going to rise and how they manage that needs to be seen.

Keeping all this in mind, it is best to stay away from banks for the time being and let us see after 30 to 90 days what the credit costs are and then perhaps take a call.


Mahindra & Mahindra is trying to turnaround the companies, be it Tech Mahindra, Mahindra Financials or for that matter even Mahindra Holidays. The managements are using words like market share gain, focus on profitability, being conscious of shareholders and using words like ROEC.
That is right. It is refreshing as far as M&M is concerned that they are focussing on their capital ratios and that had been one of the weakness of the group as a whole and the fact that they let go off their South Korean subsidiary and decided not to invest any money over there, does show that they have become very conscious about where there allocating their capital.

At the same time, the tractor business has done extremely well for them and has somehow balanced off the kind of negative volumes and profitability from the utility vehicles division. So one has balanced off the other and which is why M&M has remained a bit of an outperformer over the past few weeks or so.

But it is a holding company and it has got subsidiaries and those subsidiaries are also doing well but at the end of the day, having watched M&M for the last 20-30 years or so, there is hardly any scope for any valuation to come into play on account of M&M. There is no scope for M&M to sell off its subsidiaries and thereby benefit the shareholders. It will remain a holding company and if you compare it to other holding companies, the discount for M&M is significantly higher than some of the other holding companies like say HDFC.

So I am not too sure that there will be unlocking of value because of the subsidiary companies but yes the standalone companies of M&M are certainly looking interesting at this point of time given the change of thought process at the management level.

ICICI Bank is underperforming not only HDFC Bank, but also the Bank Nifty. Why?
Maybe because it is a crowded trade and overall sentiment in banks has been weak. ICICI Bank had a stellar run and until the Covid-19 pandemic, it had been an outperformer. It had also been a favourite with a lot of mutual funds. ICICI Bank was among the core holdings of mutuals. Now, the overall sentiment in the banks has been a bit tepid ad which is why we are seeing underperformance of ICICI Bank which has been to an extent over-owned.

There is a great deal of uncertainty as far as credit costs are concerned for the banking stocks and ICICI Bank included. I would say that valuation wise it is great and it has got many positives and many strengths even in its subsidiaries and there has been a good turnaround as far as their legacy NPA assets are concerned and most of them have been provided for. Yet, going ahead we need to understand what their credit costs will come on account of the pandemic. I would say it is a good long term stock but in short to medium term, one needs to be careful.

Does the same apply for Bharti as well because even after all the MSCI, FTSE selling, yesterday the stock breached Rs 500?
We are very positive on Bharti Airtel. Usual disclosure that we and our clients are invested in it and I think that all the uncertainties surrounding AGR and also surrounding what their total liability is, it is now completely clear and done with. We all know that Bharti Airtel has enough resources to take care of all its liabilities and the fact that Vodafone may still be around and may go ahead and increase its tariff rates and benefit the industry and Bharti Airtel as well in particular.

At the same time, Bharti Airtel is developing a lot of digital offerings which can be encashed or will certainly add value to the consolidated Bharti Airtel valuations. So we are very positive on Bharti Airtel and the next two, three years will be great for the telecom industry and Bharti Airtel in particular.