Is it time to turn contra & pick up Asian Paints & cement cos?

“We need to play a little safe and continue to have an overweight position on some of the Nifty companies like IT, banks, some of the consumer discretionaries like Titan, where the earnings growth is very strong and telecom companies – be it Bharti or Reliance,” says Hemang Jani, Equity Strategist & Senior Group VP, MOFSL.

The disappointment on Biocon played out on Monday itself with a knee jerk reaction and correction of about 11.5% coming in. How are you reading into this acquisition of Viatris Biosimilars for $3.3 billion?
The biosimilars deal with Viatris deals with the entire value chain in its biological business. The management was very keen to get into it in a very big way. While the deal forward integrates BBL in the biologics value chains, the valuation paid for acquiring Viatris is definitely expensive and it will take some time for the company to have an EPS accretive kind of a proposition when it comes to the overall deal.

Over a period of time, people would definitely value something which is as structural as this but Biocon already has a significant amount of debt and there can be some sort of negative implications from an investor perspective about doing it at a time when things are not looking that great. So we have a neutral position on Biocon at this point of time.


At what point in time would you be thinking contra and buy an Asian Paints which will benefit if crude comes down or buy cement companies which will benefit once coal prices come down or buy a Tata Steel if coking coal prices come down?
It is a bit early to conclude that the worst impact on some of the oil users be it paint companies or auto companies or cement companies is over. At the same time, we also have to think that if the crude prices and some of the other commodity prices including the chemical prices continue to remain elevated for a bit longer period of time, then what sort of overall demand impact it can have and more so from an overall India’s fiscal positioning versus what was really anticipated in the budget estimates and a whole host of impact in terms of interest rates etc.

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I do not think the current issue is as easy as gauging an impact on the user industry but more complex in terms of large implications. So we should really wait before taking a call on entering into some of these names. Yes, we do think that the overall earnings picture continues to look good. For this year, we are looking at about 35% Nifty EPS growth; next year about 16-17% and hopefully the overall dent in terms of EPS impact would not be material. But at the same time, we need to play a little safe and continue to have an overweight position on some of the Nifty companies like IT, banks, some of the consumer discretionaries like Titan, where the earnings growth is very strong and telecom companies – be it Bharti or Reliance. It makes sense to be with some of the companies which are large and where we have a slightly better handle on the earnings, rather than going into the broader market or the oil users.\