There has been a massive move on pharma. Is it now the time to dip in or has one already missed the bus considering how swift and sharp the upmove has been in pharma?
I do not think anyone has missed the bus yet. The profitability still has to come through. Of course, the move has been swift and near term, there may be some profit taking. But if you look at it on a one or two-year timeframe, there is reasonable headroom on the upside for the pharma companies to continue to do well. We have just seen the initial news flow coming through in terms of some approvals as well as from the fact that there is just that initial bit of less pricing pressure in the US. But a lot more needs to be done and the road ahead is quite long.
Where within pharma would you look? Would you recommend investors to be selective in pharma or is it a basket buying approach which also could benefit right now?
Basket buying would be recommended for retail investors. There are a couple of good pharma funds which are reasonably diversified. Pharma has many moving parts because the business model of many companies is different. The markets in which many companies operate are different and the pipelines for many of the products are different. It is a very differentiated kind of a sector unlike, say cement.
Consequently, for most retail investors, it is recommended that you put your money into mutual fund and an SIP would work perfectly well because from here like I said I would expect to see some profit taking given the sharp move but if you consistently put some money week after week I think you would probably get a fairly good average.
What do you feel about the TCS buyback? It has come at a premium and much higher than what the market participants were expecting. Do you think it smake sense for retail participants to tender in?
This is something which you get instead of dividend given the triple taxation that exists on dividend flows now. From a retail investors point of view, if you are not looking at getting out in a hurry, you may want to continue to stay on because with a couple of percentage points shareholding reduction, a lot of your shares are being bought back, especially if the promoters also were to participate.
However, overall it will impact the earnings and so over a longer period of time. I do not the market is too fastidious about valuations right now and so long as there is growth, the stock price continues to do well.
I do not see the situation becoming worse from here, if at all. The technology sector can only get better numbers coming through as the growth in the US picks up and we see that the economy in the US is doing quite well. Therefore, you should expect to see a demand growth continuing from there on. Overall, the IT sector still continues to remain somewhat less owned than most others and also a little less expensive than the rest. Thats where you would want to remain overweight.
What is that one defining trend that you think is going to dominate markets in the week to come? Would outperformance continue within IT and pharma?
I do not think that there should be any reason for pharma and IT not to do well in the near term, especially with the rupee showing signs of weakening and inflation showing signs of raising its head again.
Those two sectors would be natural hiding places but the dominant factor will continue be what happens in the global markets. If for whatever reason, there is a in terms of emerging markets flows, we should be prepared for volatility on the downside.