Pullback in midcap banking, auto, industrial stocks on cards: Saurabh Mukherjea

In a chat with ET Now, Saurabh Mukherjea, CEO, Institutional Equities, Ambit Capital, shares his view on pockets that may or may not find favour with the investors.

ET Now: Nifty has fallen around 8-9 per cent from its peak, which is quite reasonable. The rally earlier was also solid and was one-sided. But, the minute I look at midcaps stocks, there is a sharp fall of about 15-25 per cent across the board. How should one approach midcap stocks?

Saurabh Mukherjea: At one level, it was to be expected, given the sheer rally we had seen in midcaps over the last one-and-a-half years.

My reckoning is that you will have small areas of safety in the midcap universe.

The one area of safety will be the whole agrochemical space. With the current government throttles back on minimum support prices (MSPs), you are likely to see farmer shifting from wheat and rice towards fruit, vegibales, poultry and dairy products. That in turn will create greater demand for agrochemicals.

So,the company like PI Industries to site — one of several in the agrochemical space — should be a good play. Similarly, as far as midcap pharma companies are concerned, as the government rolls out direct benefit transfer, the domestic demand for pharma should step up.

A whole $300-400 million people below the poverty line will be able to access subsidies for the first time in their lives. That in turn should really catapult demand for local pharmaceutical products, quite dramatically.

Take Torrent Pharma for example. The stock, amongst other midcap plays, should be a good place to invest in. You will have spots of safety where you do not see earnings pressure over the next 6 to 12 months.

You will continue to see continued inflows. But if you ask me, I would say banks, auto, industrials are the spaces where midcaps have done so spectacularly well over the last 18 months, that a six-month pullback does look on the cards in those sectors.