Following export duty on steel and excise cut in fuel , I like Mahindra & Mahindra, Maruti NSE 4.13 % as well as Ashok Leyland NSE 4.14 % in auto space. All three should do well and this could actually give a fillip to the oversold two-wheelers companies also, says Sandip Sabharwal of asksandipsabharwal.com.
On the metals basket post imposition of export duty
I was cautious on commodities going into the second half of this year given the kind of monetary tightening we are likely to see. The imposition of export duty on steel was not anticipated and it is very significant because it is a percentage imposition of import duty of 15%. On steel at around Rs 75,000 to 80,000 a 15% export duty would be at least Rs 8,000 to Rs 10,000, depending on the various categories of steel. So, this move will definitely impact steel companies’ profitability significantly.
However, there is no export duty on companies exporting steel products. So, those companies will not be impacted but steel companies will be impacted. As it is, globally steel prices have started to come down and so it is a double whammy of sorts.
My guess is there could be 20-40% downside in most steel stocks and people should stay away. Other metals like copper, aluminium have not been impacted because in the downturn, they did not get any protection and so now they are not facing these duties. So if at all people want to play bounce backs in commodity, that is a better space.
The fuel excise cut on the other hand is going to be a huge positive for sectors across the board. Auto comes at the top of that list. How are you reading into the moves and what could we see for the entire auto basket? Are there select names one can bet on within this sector?
Both steel export duty imposition as well as fuel excise duty cuts are very positive steps for the auto sector as well as capital goods companies. They had huge order books but because of the consistent rise in steel prices, their profitability was getting impacted. So these two sectors are disproportionate beneficiaries.
I like Mahindra & Mahindra, Maruti as well as Ashok Leyland in this space. All three should do well and this could actually give a fillip to the oversold two-wheelers companies also because the sentiment impact in case of two-wheeler companies and there is an impact on profitability because of two-wheelers. The impact of steel price is much more because of the cost of electronics, etc. We could see some sort of rally starting there although I do not hold any of the two-wheeler stocks but we ..
Last Friday, a lot of trading was witnessed in Dr Reddy’s and Reliance Industries. How are you looking into the earnings of Dr Reddy’s?
Dr Reddy’s results were pretty decent in the context of what is happening in the pharma sector. The stock before it bounced back, had almost gone to its 52-week low. In general, the pharma sector has underperformed in this market driven by price pressures, issues related to Russia as well as input cost pressures. So in that overall context, Dr Reddy’s results came out pretty decent. Right now, we are not holding Dr Reddy’s, but I was positively inclined post results.
I would think that given the fact that the stock is extremely under owned and today hardly any of the funds own it and fundamentals seem to be on the mend and future seems to be a bit positive, this stock should be an outperformer.
What about Reliance Industries?
The Reliance move was more related to the Nifty move because Reliance obviously being the highest weighted stock on the Nifty and whenever there is short covering or a bout of buying or long build up in the Nifty, Reliance tends to be the biggest beneficiary. It got sold off significantly post results which disappointed on various parameters. I would not read too much into the move in Reliance at this stage.
Did you get a chance to look at the performance of Shree Cement because while the numbers were largely in line with expectations, the gap that the company had versus its peers is narrowing down in terms of the EBITDA per ton performance. What do you make of that?
Shree Cement results were decent and that has been the trend this season, where most of the cement companies expectations’ were low and they have delivered better. I am slightly concerned by the statements of the government on bringing down cement prices, although they have not announced any specific measure.
Right now, they have just talked of logistics and so I would be a bit wary near term because if some steel like measures are taken, if cement prices do not come up, then that could impact these companies negatively.
Let us wait it out for two, three months before getting into this sector.
The Street is talking about how real estate stands to benefit given the steel prices have come off and cement prices may also be brought under check. Would that mean good news for real estate companies because the demand has been strong?
Yes, at the margin it obviously benefits them because input prices get controlled as a lot of real estate companies were unable to pass on extra cost price hike to the consumers given that the industry is recovering after almost a decade of downturn. However, there is no specific measure on cement and so we cannot really count on that at this stage.
Would you like to play that theme? What would be the top bet in this sector?
Right now we have exited all our real estate holdings and that also some time back when the prices just shot up to euphoric levels. I am waiting for opportunities, I still do not see the kind of value which is required in the stock prices to get in.
Source Name:-Economic Times