However, if you are already invested in these companies, then remain invested because there is a very strong momentum which is lifting these shares at this point of time, says Dipan Mehta, Director, Elixir Equities. It is difficult to say where commodity prices are headed but the way markets are rewarding steel stocks, do you think this is in anticipation of higher steel prices, better demand or is this now a bubble?I do not think it is a bubble because valuations are still within the normal zone. They are not out of whack by any chance and after a long down cycle, we have seen a decent upsurge in steel prices. The next few quarters look very positive for the steel industry globally with even the US economy where steel consumption will move up because of the stimulus package of President Biden. So there are a lot of positive factors for steel which is why prices are going up and volumes are also likely to pick up. But the question from an investor’s perspective is whether these are levels to get into the steel stocks because the risk return ratio is still favourable. Over there, I do not think the risk return ratio is that favourable at this point of time. The best part of the gains have already been captured in the stock price. A lot of good news has been discounted and considering that it is a cyclical industry which is notorious for destroying value rather than creating value, investors should be a bit cautious in investing in steel stocks or other metal stocks at these levels. If you are already invested in these companies, then it is an easier decision. You just remain invested because there is a very strong momentum which is lifting all these shares at this point of time. What is the yard stick one should use to understand whether steel stocks are expensive or not? In this sector where when profits go higher, PE multiples go lower unlike other stocks.The real time to buy is when these companies are bleeding, making losses and are in kind of a distress zone with the weaker ones declaring bankruptcy. That is when you will get the multi-bagger type of returns in commodity stocks. At these levels, they are not in that situation at all. These are boom conditions for steel companies and investing at the top is never a very profitable type of situation. It is best to avoid metals at this point of time. It is a train which has run a large part of its course and maybe more towards the end of its upcycle. You have been fairly bullish on the pharma space as a whole. How would you be playing the entire pharma sector? Pharmaceuticals are quite distinct from diagnostic companies and specialty chemicals. The variables are completely different and for Indian pharma companies, a lot of performance is dependent on the US generic market and overall global exports. I do not think there is any much of a slowdown in the market and we are continuously seeing Indian pharma companies adding more and more products and getting more and more approvals. Right now because of the pandemic, there are fewer US FDA inspections and so that risk has only got delayed. In my opinion, pharmaceuticals offer a good safe haven for investors and some amount should be there in the portfolio. Right now, the economically focussed stocks are in play but a certain amount of safety would always help in a portfolio and pharmaceutical companies and software companies provide that kind of safety and stability. Having said that, I was very impressed with Sun Pharma’s numbers for the December quarter and looking forward to good numbers coming in from the company in the March quarter. That one stock we would like to be overweight on. The second one is Aurobindo Pharma which has been a complete power house when it comes to launching new products and backward integration. The valuation is quite attractive here and there is scope for PEs as well as the earnings to move up. Then there are the evergreen stocks like Divi’s Laboratories and Cipla and Dr Reddy’s. By and large our position in pharmaceutical companies is quite positive and you could look at buying into a basket of these companies to avoid any US FDA risk which tends to hit the stock pretty badly as and when it does occur. While the second wave of Covis is here and mini lockdowns have started and restaurants are actually shut in Maharashtra, why was Barbeque Nation locked in the upper circuit for two consecutive days? Your guess is as good as mine and the market always tends to surprise us. This was one company where the IPO was not subscribed to like some of the other ones and we have seen a 40% up move this year. So it is really surprising. I thought the valuations were on the higher side even at the IPO price and given the conditions that we are in, it is best to avoid the stock at this point of time. No doubt, consumption-oriented businesses which are very fancied in the market and quick service restaurants (QSR) will do well. Restaurants like Barbeque Nation certainly do have a future but I just like to get the valuation right and make an entry where there is at least some amount of margin of safety which does not seem to be there at this point of time. You may be looking at many quarters of disappointing earnings from Barbeque Nation for no fault of theirs. It is just the way the curbs are and the way the traffic is because of which the restaurants remain underutilised for extensive periods of time. I want to be a bit cautious. Sometimes markets tend to amaze. There could be some technical positions and there could be some other extraneous reasons why the stock has reached the upper circuit. I cannot justify buying Barbeque Nation at these levels. The Lodha IPO got a muted response. Have you taken a look at this?We have and although I do not advocate buying onto the IPO because typically what price it will list at is very uncertain and sometimes it can list with discount. But Lodha or Macrotech Developers as it is now called is certainly a company we should keep an eye out for as it is the largest real estate developer and the kind of land bank it already has and its track record in terms of delivery and the sheer size of the number of new projects make it a very interesting investment opportunity. The actual real estate cycle is starting to move up and consolidation is underway within the relative sector. Companies like Lodha Developers may have excellent times over the next two-three years or so and given its kind of track record with listing maybe the IPO is valued at a reasonable level leaving some of the profits on the table for investors. I certainly would be tracking the company quite closely on listing. Let me see how the numbers are going through for a couple of quarters because that is a bit of a disappointment. If other peer group companies have been showing a bottom line growth rate even in a very challenging environment, Lodha is not being able to do so for reasons which they have explained. So it is a company which one should keep on the watch list being amongst the largest players in the real estate sector and within one of the most attractive real estate geographies in the country. so let us just wait and watch and see how the stock and the story evolves but this could be an interesting opportunity once there is more clarity about the growth metric going forward.

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