We are seeing sectoral churn in the auto sector. You are still bullish on it when it comes to 2023 but would you want to make the distinction between say the two-wheelers and the four-wheelers because this year it was a lot about commercial vehicles followed by passenger vehicles. Do you finally think it will drill down to two-wheeler vehicles as well?
In the last 20 years, a number of times I have heard about the death of Hero Honda and it is still there. At some point in time, the two-wheeler growth will come. I put out something six months back saying everything was negative for the auto sector, oil prices were high, commodity prices were high, the EV story was supposed to kill a lot of these companies, the only thing was that the auto index for over a five-year period had delivered negative returns. Most of the stocks were sub 12 PE multiple including all the OEs with nearly 20-25% net cash on the balance sheet.
Since then, the story has turned around 360 degrees. Metal and oil prices have gone down. Interest rates in India are not increasing at the rate at which they have increased and at the end of the day, over a five-year period while the auto index had not delivered much returns, five years back the darling of the market was
and what actually did well five years later was and Mahindra & Mahindra.
I think being contrarian at any point in time is going to help as will value investing. So if there is value in auto, there is going to be growth and these are the companies which are going to drive the shift to EV as and when it comes.
Pharma did well only in 2020. It faced pricing issues, USFDA, more launches, prices coming down, companies not being able to do succession planning properly. What do you think will change because the only reason it will go up is if there is something different. What is that one or two themes you are looking for in the sector?
Over the last decade or so, a lot of pharma stocks like
have been quoting at a decade low. Pharma as a sector has not done well; pharma growth for a lot of domestic companies has been very strong at 15-17% in the last couple of months. Valuations are attractive. It is not within our buying zone right now but over the next one year, pharma as a sector is going to throw up a lot of opportunities.
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What would you look at– US companies, hospitals or India packs?
Clearly not hospitals. We have been looking at pharma companies. The top pharma companies would typically tend to have exposure both to the domestic and the regulated markets as well. We are looking at the top companies. We have started working on it but we do not have anything in our portfolio as yet. We would wait for a lot more margin of safety before we would want to enter.