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    Better to avoid entire telecom and pharma pack, says Dipan Mehta

    Synopsis

    "The best time to look at SBI Life would be maybe three to six months after listing."

    ET Now
    Talking to ET Now, Dipan Mehta, Member, BSE & NSE, explains why he would rather avoid entire telecom sector, Reliance Jio included, despite the cut in IUC charges. Edited excerpts:

    ET Now: Would SBI Life be a subscribe for you or would you say that maybe going by the valuations, this is not the best bet right now in the market?

    Dipan Mehta:
    As a general rule, we do not track the IPOs because there is a lot of flurry around them and on listing also, there is a lot of price volume action and the valuations sometimes can be quite distorting. We just like to avoid all IPOs and maybe three to six months down the line when the actual numbers start coming in and we have a little bit more information about the company, that is when we look at it. But looking at the way the insurance sector and especially life insurance and the immense headroom that is there for growth, I would say that SBI Life certainly could turn out to be a good investment.

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    It is just that one needs to get in at the right price point and that I think would be maybe three to six months after listing.

    ET Now: Would that be an underweight on Bharti this morning and an overweight on Reliance Industries purely on the back of the news on IUC?

    Dipan Mehta:
    Well underweight on Bharti for sure but not certain of overweight on Reliance because our view on Reliance is neutral to slightly negative. We would like to see the exact financial impact of Reliance Jio and whether actually it turns out to be profitable and the investment made justified in terms of return on investment. There is still a lot of uncertainty surrounding that aspect and so I would say it is best to avoid the entire telecom industry directly, indirectly through Reliance or whether it is Bharti or Idea.

    The way the sort of trends are over there, it is the consumer who will be the winner and it is the corporations and the companies which are offering these services which will have to suffer as far as their balance sheets and P&L is concerned and that is not a great situation for minority shareholders. I would say avoid all telecom stocks, Reliance included.

    ET Now: Are you turning bullish on pharma? If my memory serves me right, a little while back you wanted to avoid the sector?

    Dipan Mehta:
    No, our view remains intact and we still like to avoid the sector and at every rise, look at opportunities to exit out of the pharmaceutical companies. There are major challenges going forward and the kind of competitive intensity which is there in the US markets and elsewhere in the globe, I think it is getting more and more commoditised, more and more sales are taking place through tenders where there are many players applying for the same generic drugs through the tenders and that is having a pressure on pricing.

    On the other hand, there are various headwinds in terms of costs, rupee appreciation, domestically also costs keep on rising for them and then there is the entire regulatory costs of maintaining these pharmaceutical plants which is also on the increase.

    So, looking at the whole picture and the kind of prospects which are there, we remain negative on the pharmaceutical industry. From time to time, depending upon news flow maybe a good quarterly number or a new launch you may see these pharmaceutical companies individually spiking up but then do not get drawn into them. The long-term prospects are very questionable and it is best to avoid the entire pharmaceutical industry completely.
    Even the new pharma policy is not that positive for the domestic pharma companies and although I know that the dynamics and demographics favour pharma industry, the fact that there is just so much capacity and intense competition globally which is what makes us quite cautious on the sector as a whole.

    ET Now: What is your view on Bajaj Auto?

    Dipan Mehta:
    Our view on Bajaj Auto is not that positive. I think the company has missed out on two very important trends in the two-wheeler market; one is the scooter and second is leisure biking. It is focussed on exports which have delivered subpar performance as compared to its peer group. And within the two-wheeler space, you have option to buy stocks like Eicher Motors and TVS, I think it is better to focus on those companies.

    Sure, it has been an underperformer for many-many quarters and to that extent some amount of catch up may take place so there could be a trading bounce but from a long term investment point of view, Bajaj Auto is still an avoid. A company like Eicher Motors which have got considerable headroom to grow internationally as well and TVS Motors which has a complete range of all two-wheeler products right from mopeds, scooters to motorcycles as well would appear to be a better prospect on a longer term basis than say a Bajaj Auto. I would say go with the secular performers rather than Bajaj Auto which has a high degree of volatility in their earnings.



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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