More interested in telecom tower cos rather than telecom companies: Deepak Shenoy, Founder, Capital Mind

In a chat with ET Now, Deepak Shenoy, Founder, Capital Mind, says there is not much reason to be bearish on the road construction sector but there is a lot of reason to be bearish on individual companies


ET Now: Some good news finally for telecos. Bharti gets its additional spectrum. RComm is in news today and may be penalties for call drop could be reversed. How are you approaching this pack?

Deepak Shenoy: From a telecom perspective, one of the things that we are looking forward to is what happens with spectrum auctions later this year. Overall, short-term news seems to be at least slightly positive. We do not know what happens to call drop penalties. Call drops are still happening. So we will have to see what happens in terms of overturning or changing the penalties. Perhaps, introducing a different way to disincentivise call drops will happen. That is part of the game. So we should not be really happy about that but for the rest, we are seeing pretty healthy interest in tower companies rather than telecos themselves. So from Infratel to the specific elements of the tower companies because some of them are moving into green and solar power towers and power is a substantial part of the cost of tower management. In my opinion, there is more interest in that space rather than the telecos themselves.



ET Now: Talking with corporates, we found that all the road construction companies, EPC companies in particular, are extremely happy. Do you have any favourites because that is one basket where not a single person is bearish?

Deepak Shenoy: Yes, there is actually not much reason to be bearish on the road construction sector but there is a lot of reason to be bearish on individual companies. For instance, L&T has a large arm that does road construction as well and it has executed a lot of projects in the past. It is one of the companies that default into road project payments, interest payments. One of the reasons is there are often too many alternative roads. So while construction of a lot of roads may be good, the people who take on a PPP project assuming that everybody will take his road, may not be very happy if the state builds an alternative road to go to the same destination. So it is not necessarily an equal game for all companies. I do not think the likes of GMR and GVK will particular benefit because the overhang of their debt. Smaller companies like KNR Construction or local players will stand to benefit. EPC players from both the railways perspective and the roads perspective are seeing a lot of orders. I would like to see that show up in results as well because some of these orders take approximately 12 to 15 months before they are realised. So overall, very positive on the sector but would like to see more action. We have not yet recommended any stocks here.

ET Now: Some of the top stock bets at Capital Mind remind me of lots of ice-cream in your fridge -- Blue Star, Kwality and Vadilal?

Deepak Shenoy: Yes, the summer camp has started to show some action again. This is short-term most likely. Vadilal is a much smaller company in comparison but overall there is some interest in the summer stocks -- Blue Star, Kwality and Vadilal. Vadilal increased quite substantially and has seen strong uptrend. So given the state of the summer and the fact that it is probably hot everywhere in the country, investors like to believe that these stocks will do well. Kwality is among the cheaper of the lot though it is not showing such a strong trend in comparison with the others. Of course, you are seeing a revival of the overall market. So if the market continues to stay strong, then these stocks will do better than the rest of the pack.

ET Now: A stock which you have liked and we have discussed before is Finolex. Now suddenly, investors have flocked to that stock. It is sitting almost at a fresh 52-week high. Is there money to be made in Finolex from these levels considering that there is a huge agrarian push which is likely to pick up further momentum?

Deepak Shenoy: Two things. First, the agrarian push being the rural spending or the spending that has been allowed through rural panchayats -- Rs 80 lakh per panchayat. Second, the Rs 17,000-19,000 crore direct spending on irrigation. Finolex makes PVC pipe. The relatively lower prices of crude have benefited them substantially. You have seen that in the December quarter and operationally they stand to benefit substantially from both these lower input prices and higher push towards irrigation. The third factor could be a positive monsoon. It does not seem visible right now. We are seeing drought in Maharashtra but really after June and July, we might see a much better monsoon compared to the last two years which will positively benefit the sector with more spending and generally coming off a lower base because of inventory losses in previous quarters. So even though there are 28 to 30 PE right now, they stand to benefit even at a 52-week high.

ET Now: A very quick word on the pharma names?

Deepak Shenoy: We are long here on couple of counters including Sun Pharma and Strides largely because of consolidation plays. They are large and midcap companies in this case consolidating. However, FDAs is always going to be a concern. So, short term, I do not see a huge trigger for them. I believe in the two-three year cycle these stocks will multiply from here in the short term you will find better opportunities so it is always better to pick and choose timing rather than just long call the money at one point on any of these stocks.