Other than financials, do you sense that there has been a softness in earnings? Look at the contrast in commentary. ABB is pretty much hinting at a cyclical slowdown and L&T is talking about private capex growth. One has not seen a big upgrade play this earning season.
Mihir Vora: It has been a mixed bag. For example, some of the capital goods pockets have demonstrated good results. My guess is that the government spending continues and so the segments linked to government spending like railways, transformer, defence, some of the infra names in construction should continue to do well.
As for the companies which rely on private sector capex, that is where the earnings are mixed. But I would say that given the overall traction that is happening on the PLI front, etc, private sector capex on a granular level should improve. Plus you might see some upside surprises in the next few years in capex for green hydrogen and blue hydrogen. Plus we are now facing not only issues on various chemicals, but even in fertilisers, China has started squeezing us.
Fertiliser plants are very large capex items and the government is actively looking at boosting domestic production of fertiliser and so there, big capex can come. The private sector capex has slowly but surely picked up and we can see a multi-year cycle, though it may not be as sharp as the cycle that we saw between 2003 and 2008. However, it should be a good upward sloping cycle as far as private sector capex is concerned.
How are you positioned in pharma because that entire 200% tariff uncertainty still looms on that sector. Are there any sub-pockets you like or are you completely avoiding the space at present?
Mihir Vora: So, let us talk about the healthcare segment rather than specifically pharma. In healthcare, we have exposure to diagnostics, to hospitals and to some of the CDMO manufacturers. We have been underweight on pure generic US plays, not so much because of tariff concerns but because of the fact that there were question marks on margins for a while and CDMO is where a lot of the incremental business and incremental activity is happening. So, some of the R&D oriented players, CDMO players, the diagnostics space and the hospital space is where we are preferring to play the healthcare segment.
In the FMCG or staples segment, one has seen positive earnings play from most of these companies aided by the fact that they had been consolidating and seeing weakness in their businesses as well. Perhaps optically it looks like a better performance this quarter, but do you think tactically it is staples right now?
Mihir Vora: Tactically probably yes. There are some base effects playing out there, including raw material price effects and the companies have been doing their pricing accordingly. I would say that from the margin point of view, things look fine. From the demand point of view, it has been a mixed bag. There is no clear trend that demand is picking up definitely, but the commentary from the companies has been positive overall. One hopes that the second half will be better than the first half and the fact that we are hoping and the buzz is that rural economy seems to be coming back, should help the FMCG pack because they typically tend to be in the lower ticket items consumption space where the rural economy has a larger say.
