Why Neeraj Dewan in bullish on consumption, infra and auto

Neeraj Dewan, Director, Quantum Securities, says growth is not happening for the larger part of the market, but four to six months down the line, the economic activity should pick up and one must select stocks based on that.

What is your outlook on the markets in light of the coronavirus fear and the impending impact on global growth, including for India? Would you have a cautious stance on the markets?

Yes, though liquidity being injected in equity right now is fine. The markets are still positive and have not really seen any selloff because of the coronavirus impact. But in this quarter some impact will be there because of supply chain disruption. This has not really been priced in because it is very difficult to assess what sort of impact it would have, which companies will get impacted or if the figures which are coming from China may spill over to the next quarter.

Since we are not sure what kind of impact it will have, it is prudent to be very selective in this market. Even our domestic results season is almost over. On the domestic front, you are not getting any cues of an economic revival happening. One needs to be cautious but at the same time use the opportunity to be very stock specific.

Where would you look since broader markets have been lagging in the last week or so? It seems to be once again getting very concentrated

When you speak to a lot of these companies post the results, no one is talking about any growth coming or economic revival happening. What most of the corporates are talking about is that the downside, the slide that they were seeing has got arrested. At least, there is some bottom which is visible but for the revival or it will take another four-six months for the growth to come back.

The benefits visible in the profits of these companies are mostly coming from cost reduction and they are trying to economise on the expenses. So, growth-wise, there are very few companies.

Even in the consumption space, wherever there is discretion involved there is no growth right now. Those companies are still suffering but the ones with non-discretionary spends, are seeing some growth. This is the first sign that at least the bottom is made and four-six months down the line things might revive.

In the consumption space, look at companies which are mostly confined to domestic consumption. In the infrastructure space, there are many projects and also the government has announced an infra pipeline. There will be some improvement on the execution front happening and also orders are coming in. Infra is one space where one needs to be positioned in.

Even in autos, there is some uptick which we are seeing. Even with the BS-VI transformation happening, the uptick is visible in the autos especially the passenger vehicles and that is one space I am positive on.

The flows will chase growth. Do you think this polarisation will continue as growth is not a broad-based so far?

Yes, the growth is not broad-based. In fact, we are not really seeing growth really happening in a larger part of the market. But of course, some growth has started happening on the non-discretionary expense side. One needs to look at six months down the line. There is a consensus that at least four to six months down the line the growth will and the economic activity will pick up. And one should pick up stocks based on that.

So many companies have data to prove that at least six months down the line we should see some revival happening. The growth should pick up, because once the bottom is made, you spend some time there, but post that you definitely have an uptick which may happen because one positive point is that the interest rates are still low and looking at the growth picture we are not expecting interest rates to go up.

What’s your outlook on infrastructure? You remain fairly selective; you like L&T from this space. How would you read into the kind of annulments that were made in the Budget for the infrastructure space? Do you think a little bit more action needs to be seen on that front and what makes you optimistic about infra?

The pipeline that the government announced before the budget was quite decent but the budget fell short of addressing how they would finance it and how the government is looking at infrastructure capex.

But budget is not the only document which can give you an impetus. Infrastructure is one area where government expenditure is improving and that is where the government is focussing.

In the infrastructure space, even when you talk about companies like L&T or ones in railway infrastructure, they are the ones where continuous investment is happening and continuous expenditure by the government is being undertaken.

This quarter should be seen whether execution picks up or not because this is the quarter when all these companies have to really build and pick up the execution. This quarter will give some indication of whether the execution pick up is happening or not.

Do you not think that issues with execution pick up has been there for a really long time? And it may now be company-specific and not sector-specific?

Yes, that is what I am saying. You have to be very stock specific right now. You cannot just buy any company in infrastructure and make money. So there are companies which were doing very well, for example, NCC. They were hit by some order cancelation and specific issues into the areas where they were prevalent but then you have to be stock specific. Even in smaller companies, one can look at companies that are mostly EPC dependent. Due to low-interest rates, commodity prices, the execution pick up should be faster. But one needs to be stock-specific there also.