Hopeful on pharma, four-wheeler stocks: Dilip Bhat, Prabhudas Lilladher

In a chat with ET Now, Dilip Bhat, MD, Prabhudas Lilladher, says USFDA will actually help differentiate between the good and the bad pharma companies. The good ones will survive.

Edited excerpts:


What is your opinion on pharma and also related space like hospitals, healthcare and diagnostics?

As far as healthcare is concerned, it is much more predictable, visible and sustainable without too many ifs and buts. We probably will continue to see some good headline growth in this sector for the next couple of years. Both Dr Lal or Thyrocare are very expensive but viewed in a two to three year horizon and the kind of growth they are talking about, they look good.

Coming to pharma companies, my broad take is that the US FDA is something which everybody now has to live with. But the USFDA will actually help differentiate between the good and the bad. I would really take it in a slightly more positive way and companies will realise their follies and then they will try not to repeat those mistakes. Maybe some of the companies will repeatedly get that and possibly will get derated. I would not be too worried about the US FDA warnings and I would still think that many of the pharma companies especially the US directed ones are going to do pretty well.

Sun Pharma is something we would like. Glenmark is another company that we will go for at the moment.

Coming to autos, the four-wheelers are rocking, Maruti despatch numbers were not bad, Mahindra & Mahindra numbers are decent, Escorts sales numbers have been decent. Is there money to be made in 2017 in a Maruti or a Mahindra & Mahindra or for that matter Escorts?

Very much. Maruti, Mahindra & Mahindra probably are taking it on the chin because some of the numbers have not been so very good and they have been benefitting mainly because they are having a waiting period for some of their cars which is what they are pushing at the moment. The conventional and regular car sales have been down and the same goes true even for Mahindras. For anybody who wants to build a portfolio in India, Maruti becomes a part of the core portfolio and not just because it is one of those blue chips but also because it has good prospects.

So, within the four wheeler pack I would go for Maruti, Mahindras and Tata Motors. I These three are something where you should really keep a watch and at every dip, they would become a good buy for a slightly medium to longer term.

2017 could be another bumper year for domestic flows and there is evidence of that. DII flows, SIP money flows are strong but am worried about the FII selling. More than 20% of the free float of the Nifty is currently owned by institutional investors or foreign institutional investors. For me, they are real owners and if the real owners are panicking, it could have a collateral price damage?

I am absolutely on the same page as you on that. FII outflows cause the markets to hit the speed breakers and this time if was not complemented by this huge domestic inflow, the markets possibly would have seen some serious correction. But the mutual fund flow continues to be good and it is only going to improve considering that the demonetisation step that the government has taken is going to be very good for the economy and for the markets in the long run.

This is really helping the markets at the moment in avoiding any serious corrections. Also, prices are significantly ahead of the valuations and for the third consecutive year, we find that the earnings have still not gone anywhere and there is still downgrade in the earnings. That is something which will be very keenly watched in 2017-2018.

Do you agree with my assessment that it is not going to be an easy year to call and market return would be a function of evidence rather than hope and belief?

Absolutely. Sometime, we may see a pre-budget rally seeping in and that would be largely the function of hopes that we will see some serious tax cuts. The question will be how sustainable will this rally be and how quickly economic recovery will come about. We are likely to see some volatility in the markets for some time to come.