But so far from the earnings, where is it that you are seeing a reflection of a pickup and one can clearly see that it is the large private banks that is the way the wave is moving.
Ashish Gupta: So, definitely the large banks have come out with good results. Some of the NBFCs as well as the mid-sized banks will also be big beneficiaries of both reduction in the delinquencies we had seen in the unsecured sides last year, so as that cycle is rolling over, you should expect better credit cost for these players and the other big impact will be the impact of rate cuts because if you look at many of the NBFCs, their incremental funding costs are down as much as 100-150 basis points compared to last year. Many of the mid-sized banks have sharply cut down not just their term deposit rates but their savings deposit rate as well and that will help really provide a boost to their margins. So, on the banking side you are seeing a major reduction in funding cost and that should benefit both the NBFCs and the mid-sized banks as well. Till now really the play was only in the large banks but you should see broader participation in the growth this year.
Along with that when it comes to some of the other sectors and case in point being cement, there too the experts are believing that the second half could actually be a little better with respect to the demand and the prices. Help us with your take on cement as well as industrials at this point in time.
Ashish Gupta: So, on cement we have actually seen a recovery in profitability even in this quarter for many of the players. So, EBITDA per tonne has already started to improve. It is coming really on account of very strong cost control demonstrated by the players as well as improvement in pricing that we witnessed from March. What we need to carefully watch is what kind of demand pickup comes through because lot of these price increases that have happened in the past three months have not been supported by volume growth. So actually, if you see many of the results that have come out, the volume growth that companies have reported is negative and I believe for sustainable increase in prices we need to see the volumes coming back.
As of now those signs are not there, but again this is the monsoon season so it is expected that volumes will be muted and really post the monsoon season, September, October trends will really tell us how sustainable this uptick in profitability on cement is. On industrials, we have a constructive view. We have seen many of the players continue to report actually very strong topline as well as margins and that trend has sustained, in fact on the industrial side the margin trends have actually been better than what we have seen on the consumption side. So, because of muted volume growth as well as increasing competition, many of the consumer companies have seen margins coming off but actually on the industrial side the earnings growth has been better and that is reflected in the valuation. So, if you see most of the industrial companies are trading at multiples much better than their historic multiples which is not the case on the consumption side.
I was going through your fact sheet, I see that you have reduced some exposure to pharma while you still continue to like that sector. What is your take on pharma given that there is a whole separate tariff announcement for that and the overall tariff announcement for India is still an overhang for us. So, what is your take on pharma and which sub-pockets would you like from the space right now?
Ashish Gupta: So, within pharma our focus actually has been more on healthcare, particularly on the hospital side, on CDMO plays. We have not been very strongly positioned on really the generic export. So really within healthcare either it is the domestic pharma companies or the CDMO companies and we are most positive on the hospital space.
But not liking autos at the moment because barring M&M I believe that there is no other major OEM that you seem to like at this point in time. Though some experts do believe that the second half of this fiscal can actually be better especially for the two wheelers given the monsoon could be good, the rural sentiment could pick up, but what is your sense, what is that that is keeping you aback from liking these names?
Ashish Gupta: No, it is a combination of really the fact that where margins are for most of these players compared to history. So, if you see despite really lacklustre growth, the margins of most of the players are already very high and the multiples in fact here despite the fact that the industry was not doing too well over the last two-three years continue to be stressed. So, we are actually underweight autos and we believe that there are better plays for the recovery in consumption and we want to look at plays where when consumption recovers you see both not just the volume upside but also some margin upside.
