investment strategy: if you have money on hand, where should you invest now?
Where do you see a sector like pharmacy heading because it’s an industry that looked like a bull market in 2020 but looks like a bear market in 2021, no industry has seen that kind of experience of a market? bearish and a bull market coexist in a matter of 6-8 months?
Yeah, I agree, it’s a bit confusing. In the fall of 2020, two sectors rebounded and performed extremely well; one was technology, IT services and the other was pharma. While technology continued to dominate, pharma abandoned it.
Again, pharma is a very complicated industry, there are regulatory issues, product issues and lots of moving parts, price competition in the United States. Many of them also played their part. In the longer term, there is money to be made but you cannot take a generic call on the sector, you have to be very specific to the stock. So I think the sector will come back. I’m not saying the sector wouldn’t come back but I think that too because what is happening is that the sector’s weight is so low in the index that usually people who index don’t really care if one or two pharmaceutical companies are outperforming because it doesn’t really impact their performance.
This is a sector that will eventually make money for investors, but we will have to be equity specific and cannot accept a sector call. All in all, there are still some opportunities in the companies which are largely in APIs and there the China plus one opportunity is very strong and is not going to go away. This is where you can earn money. But if you’re betting on generics, then it’s a pretty complicated industry because what happened initially was that there was a lot of enthusiasm about the desirability of vaccines. Then slowly that opportunity and excitement wore off.
Also read: The bull market is intact but more specific to stocks; where to invest now?
There were a lot of one-off profits that were paid out to companies in 2020 in just a few quarters because certain types of drugs were more sold and there was also a lot of pre-stocking. We probably need a few more quarters for investors to realize that we are seeing a normalized quarter-over-quarter growth rate in the pharmaceutical sector.
It should happen now but overall the long term attractiveness of Indian pharma’s competitive advantage continues. It is a vast territory and Indian companies have traditionally always had a great competitive advantage and it must not be forgotten that it is thanks to the pharmaceutical sector that we are all well seated today.
Imagine if India’s pharmaceutical sector didn’t have the capacity to develop its own vaccines and this country had to rely on imported vaccines to immunize 1.3 billion people, I don’t think our economy would have had a chance to recover . Vaccination is the reason the economy is now opening up and things can normalize. The strength and competitive advantage of the pharmaceutical sector cannot therefore be overlooked. If we didn’t have our own national vaccines, this country would be in dire economic straits.
Where do you shop in this market? Is there a long list of stocks for which a 15-30% correction has been triggered? So, for a stock picker, this is a lovely market.
We are pretty much fully invested and we can only buy when fresh money arrives. We are betting on some of the themes I talked about. Our big bets continue to be in technology; we have some exposure in specialty chemicals and pharma.
Gradually, we see opportunities in consumer discretionary and in all sectors that are opening up and are likely to benefit from the opening. Most of them are on the verge of seeing the recovery return to pre-pandemic levels and we are seeing consolidation there. So alcohol stocks, some retailers, some fast food companies, automobiles, auto accessories are areas that should gradually be doing very well from here.
Selectively among banks and NBFCs, we remain bullish on Bajaj Finance and ICICI Bank. We continue to focus on some of our main titles there. On the midcaps side, we are quite optimistic about the ER & D companies because I have always said many times that they are in a phase of structural growth and that the leadership is maintained.