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This kind of a knee-jerk reaction is on expected lines given the fact that the global growth is at risk because of coronavirus issue. As a consequence of that, discretionary spending globally could come down, which will have pressure on commodities including metals and crude. But thankfully for us, this is not that negative with crude especially being soft and likely to remain soft. So, I think any kind of a knee-jerk reaction will be bought into. The only issue is that, in the domestic market, if you look at all your good quality stocks, we have not seen that kind of a crack. So hopefully, if we get a crack today, all these decent names or good names should be a buying opportunity. Our sense is that, even for some of the segments like, say consumer durables, where there is some element of import, there the Q4 is not going to get impacted. I think Q1 will be impacted only if we see certain shortage of raw material; so probably, single digit growth or double digit growth, which we are anticipating might come down by 3-4% and that again is an extreme scenario because our sense is that if the companies are able to airlift some of the components and are able to pass on that extra cost, even that impact will not be there. So any kind of a knee-jerk reaction, what we are going to see today or some days later, should be a buying opportunity. With March coming in, hopefully if the temperature rises, probably this problem also might get contained; so from that perspective, overall we do not see this as a big negative for Indian markets given the fact that while the earnings have been lopsided largely driven by banks, the liquidity continues to remain good and is likely to remain good for the rest of the year.
What are your thoughts on cement as a pack and on India Cements in particular?
So overall, cement as a segment should pick up largely. Especially within the road players, where the government has done a decent job of land acquisition; so, we would expect the ordering and tendering to sort of pick up. I think the associate beneficiary of that would be cement stocks. But within cement, I think India Cement has got a single digit ROE; so from a balance sheet perspective, it is quite heavy. So, we have not been chasing that stock. Our preferred picks have been tier-I names like Ramco Cement or UltraTech Cement or even some of the regional names like JK Cement or JK Lakshmi. I think that is where we have seen a decent improvement in terms of overall margins. Plus, I think that is where we would want to chase. India Cement, historically, has not done well across cycles and which is where I think the challenge remains for the stock; so we will not be chasing India Cement for sure.
There has to be value which one would like to associate with Tata Motors. Right now it is not a business which can be squared off as a zero business. It is a Tata Group company; they have JLR, they have India’s largest CV business, 8% market share of the passenger car business. Markets are literally treating it as if it is a franchise that has no value.
The only issue in Tata Motors is that they have got a good exposure in China and globally also if you look at the entire auto industry, it is in stress given the fact that there is a technological disruption going on and something like Tesla has been sort of winning. So from that perspective, the kind of capex which will be required for Tata Motors is fairly high. Up till now, they have not been able to find a partner and I think coronavirus also will have an impact. Domestically, I think they have been doing fine in terms of the launches, especially on the PV side. But I think the CV industry overall is still not seeing any signs, if you sort of go by the commentary of Ashok Leyland. So, I think what they are expecting is probably in H2 or after that only you might see some bit of an uptick. Even Ashok Leyland would be a bigger beneficiary given the fact that their balance sheet is better. So I think for most of the auto stocks, the challenges still remain and coronavirus has sort of added to that problem. What we like is something like Hero Motocorp which is trading at about 11 times. They have recently displayed decent good products, especially on the premium side; so there is a hope that probably stocks like these could do well but overall auto as a pack, we are quite negative on the entire pack. And Maruti is a sell according to us and we have a target price of about Rs5,850.
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