After 300% rally in 1 year, can Tata Steel be a long-term growth story?

What is your own sense on PSUs given that the government’s disinvestment and privatisation process is going to take a backseat?
Some PSU stocks like SAIL and to some extent State Bank of India are not moving necessarily because of divestment hopes. Divestment related expectations are confined to few names like BPCL, Container Corporation and a couple of other names like BEML. But SAIL has its own story in terms of steel cycle and the kind of numbers that one is expecting out of this quarter and beyond.

State Bank of India stock had corrected about 15-20% from the top and as we see some stability and earnings, people are getting more comfortable entering into it at a correction. So some of the companies which are part of the PSU pack will have their own dynamics. We continue to be positive on SBI, SAIL and defence names like Bharat Electronics and even some smaller PSUs like NMDC, where because of growth in both volumes and pricing earnings visibility is improving.

What to expect from Tata Steel, especially given that steel mills have again undertaken a price hike to the tune of about Rs 4,000 to 4,500 per tonne and exports are also set to rise further? Is it a long-term growth story and can one still buy afresh?
The stock has gone up by almost about 3 to 4 times and no one really knows exactly when this cycle will peak out. When we look at the current data, domestic prices are about Rs 5,000-7,000 lower than international prices. Overall, the environment globally for steel continues to be good. If prices remain at where they are or if there is a marginal increase in India, then the upgrades are going to be massive. One more important aspect is that a large number of investors, including institutional investors, have not been able to participate in this commodity play. So a combination of these factors would create some positivity around it when the numbers are announced. Within the pack, we like SAIL at this point. JSW has run up a lot and so one can wait for it to cool off. Hindalco is also extremely well placed.

What is your outlook on the pharma space? Is Aurobindo Pharma well prepared for the next phase of growth?
Look at the way Aurobindo has transformed in the last 2-3 years. Their generic base business is looking good and with Covid, people are focussing on incremental opportunity in pharma companies. On the valuations side, Aurobindo is quoting at a 12-15% discount to many large companies. Given these factors, Aurobindo would remain one of our preferred picks. It is a great midcap company in the pharma space to hold.

Where within the midcap pharma space is there opportunity to buy afresh?
We prefer Gland Pharma because of the way the entire injectable story is playing out. It is one very unique story where there is a very high earning visibility of about 25% of CAGR growth in the next 2-3 years. Apart from that, pure API plays like Laurus Labs where the numbers have been good. Besides Granules, Ipca can also be an interesting story to look at from because of their product positioning.

Given the hefty valuations in FMCG stocks, where is it that you are comfortable placing your bets?
The overall outlook on FMCG is quite positive. Both HUL and Marico have reported very strong volume growth. If we have slightly better indications of monsoon, the overall economic revival continues to be good and this COVID situation does not aggravate, then consumer companies would do pretty well. Within that universe, our preferred picks are HUL, Dabur and Marico. These are the companies that one should definitely look at owning from an investment perspective.