Independence Day | Independence Day Ideas: 3 Sectors That Can Take the Worry Out of You This Independence Day

Why do we see so much strength? Everyone says that valuations are expensive, that valuations are at their limit, that you should not invest, that you should save, that you should not invest, that you should stay in cash, but the markets are not going down.
Siddhartha Khemka: If we look at the markets, yes, certainly strong liquidity is supporting sentiments and indices as well. But what is also supporting so far has been strong macroeconomics that have withstood global headwinds and that remains the case, which is also a positive argument for the future.

Whenever the interest rate cutting cycle starts, the expectation of flows from global markets to emerging markets, especially Indian markets, could be quite strong, especially given the fact that over the last few months, FIIs have been consistent sellers in the broader market and that is one space where despite arguably lackluster performance of Nifty over the last few days, midcaps and smallcaps have outperformed.

It is a case of very strong liquidity from internal flows, be it DIIs, HNIs or retail investors, and that is what we are also seeing in some of the new stocks, the IPOs that have come out. You can also see the appetite from the institutional side, both domestic and foreign, for most of the OFS or blogs that the promoters or the private equity funds have sold. We have seen huge demand for some of these stocks. That just shows that the appetite for the right quality of company and the right business is quite strong in the market.

What do you find interesting? If I were to ask you what your pecking order is within sectors, stocks or anything else, give us some ideas for Independence Day, if you can, or some topics you’re following closely for the coming months or weeks.
Siddhartha Khemka: From a broader sector perspective, after the earnings season, the sector that stands out is pharmaceuticals. Some of the big names have delivered very strong numbers and we have seen two or three consecutive quarters where the numbers have improved significantly. In aggregate terms, our healthcare sector has seen net earnings growth of over 20%, so we believe it could continue to do well.

Apart from that, FMCG is another space where you have heard a lot of comments about the rural sector picking up and the growth being better than urban, that is another space. The auto sector is the third space where we think there is a good demand flow and with some of the raw material prices stabilising, the margins have also improved. From the broader markets, we like some of the names. Recently, we have come up with new ideas from the broader market. In the real estate sector, we introduced the initiative of Signature Global. It has emerged as a leading real estate developer in the Delhi-NCR market with a focus on the affordable, low-income and middle-income housing segment. It has shown strong execution capability with a strong project pipeline of 30 million sq ft to be launched in the next two years, so we expect a steady CAGR of 35% in bookings. The company is also looking to foray into the premium housing segment which should help the overall growth of the business. So, we have a very positive view with a target price of 2000.

On Wednesday we came up with a new idea: Gravita India. It is a bet on the recycling theme, so the space is also doing well. Gravita is a leading player in the recycling industry, especially with a big focus now on the electric vehicle sector, lead and other batteries will be on the market. The company is therefore establishing itself, 88% of its business comes from battery recycling, around 8% from aluminium and a very small part from plastic.

We believe this company could continue to perform well. We expect a revenue CAGR of 26% and a CAGR of 30% over the next two years and have a target price of 2350 for Gravita India.

The space that has been on everyone’s radar right now has to be the new-gen tech companies, the next-gen companies or the class of 2021. All of them have seen a good recovery move, actually, be it Nykaa, Policybazaar or for that matter Paytm has also come back from the lows. Zomato has been gaining all along. What is your take on that space? Do you think a rethink is warranted?
Siddhartha Khemka: Yes, it is a sector that is still booming and rightly so. If you look at some numbers, Zomato has posted very strong numbers. Even PB Fintech and Policybazaar have posted strong numbers. Nykaa is now showing some improvement in numbers after a couple of weak quarters.

These companies have realised that sooner or later they have to focus on the path to profitability, where at least the e-commerce companies have considered increasing platform fees, which is leading to an improvement in overall operating profitability. So, within that path, what we like is Zomato, we have a target price of Rs 300. We have improved the target price after the recent results. First quarter, well ahead of expectations.

If you look at the core food delivery business, it is quite stable. But what surprised us on the upside was the Blinkit business where the gross order value grew by 100%. We believe that these high growth opportunities are once in a generation opportunities to invest and participate in, especially in retail, food and e-commerce, so it should lead to healthy profitability in the coming years and the appreciation should continue for companies like Zomato. So, I would say that within this group, we like Zomato with a target price of Rs 300.