What is your take on some of these new-age tech companies which were on Tuesday. Policybazaar was about 12% higher, was up 5% and also is showing some sort of an up move. How should one approach this sector now?
Some of these high tech companies are showing maturity in business after the initial IPOs disappointment that we have seen in some of them. These companies are now gearing up for a profitable phase of growth. Many of these companies do not necessarily report great profits or good profits. I am expecting that the next phase of growth will be a profitable phase for many of these companies accompanied by stability and maturity in business.
So hi-tech companies should do well, particularly those which have been beaten down quite badly, are the ones to really pick up because there is nothing to lose from an investor’s point of view in some of these companies. If you were an IPO investor, it is a different story but if you are going to invest now in hi-tech companies, there is nothing to lose. I would reckon that most of these companies will start doing well in an environment where we see a stable growth outlook.
Some of the pharma and pharma ancillaries are buzzing. Suven Pharma is inching higher, JB Chemicals are the stocks which seem to be doing well. Even the entire chemical space, the manufacturers of these components, are gaining traction given what is happening with Europe and China. Does this space qualify as a good investment bet not only for short term but medium term as well?
If you look for pure pharma plays, then you should not be investing in pure pharma plays right now. One can look at some of the chemical names or companies that are into making APIs for these pharmaceutical companies simply because pharmaceutical companies have a regulation overhang that will keep coming time and again.
We really do not know when the next regulation overhang will come, whereas API manufacturers or chemical manufacturers who make the basic building blocks for some of these pharma companies are better bets. They are not only in the pharma space, they are suppliers to such industries as agrochemicals, to automobiles, to even the metal industry. We should be looking at some of the chemical names that are better bets. When you are seeing a market at the top, valuations will not be a bottleneck for some of the chemical companies going ahead.
But don’t you think that there are regulatory issues in pharma companies even though the prices are attractive? It has been one of the sectors that has really been dead and out and a lot of launches and FDA inspections are happening. It is not that things are not moving now?
Among pharma companies, if you look at the large pharmaceutical names, then most of the companies derive their business from the US, almost 30-40% of their revenues come from the US side and much more in terms of profit. But any disturbance, any kind of regulatory overhang that comes in makes it very unprofitable for them for reaching out to the US market. There is not only loss of business in terms of the future business, there is a lot of backward corrections that they need to do. So the cost involved to mitigate the regulation risks are very high for pharmaceutical companies. They have not been able to build up a strong brand image, brand base or a big manufacturing base which is well spread out. I would reckon that the pharma companies traditionally will continue to remain as defensive stocks. When you have Nifty at 18,000 levels, pharma is not the space that you should be looking at to take on additional risks.
We have one buy on IT, one avoid on IT. Which camp are you in?
I would rather buy the IT space because they have come down to attractive valuations. The past margin worries are nowhere.
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