“So, yes, if somebody says that these stocks have run up, these businesses have run up over the past two-three years, they have. But whether the earnings of these companies have caught pace with what has happened on the stock price front, I think yes,” says Devang Mehta, Spark Private Wealth.

A few days ago after the entire meltdown per se of the market started, there were brokerages that came out with downgrades on the entire capital goods sector saying that momentum plays are going to get undone. They are getting very expensive. But take a look at Cummins today, post the commentary coming in on the concall that stock is up 7%. ABB India, just ahead of its earnings is also fairly excited. What do you make of some of these industrial names? Is it better to take some profits off the table or they still continue to be good buying opportunities?
Devang Mehta: We have clearly been very vocal on the so-called industrials/capital goods/power, energy automation. These are type of companies, these are themes which are probably getting from more cyclicality to now a more structural play.

So, yes, if somebody says that these stocks have run up, these businesses have run up over the past two-three years, they have. But whether the earnings of these companies have caught pace with what has happened on the stock price front, I think yes.

More so a lot of these companies have their order book full. They have developed the execution capabilities very well. The margins are tending to improve for a lot of these businesses. And one thing is extremely sure that when you talk to the management of these companies, be it on a conference call or be it generally when they come and talk about their business prospects, I think they have been extremely-extremely positive in terms of even their body language and commentary.

So, the sense one gets here is you cannot write off the industrials or the capital goods or the power just on the back of higher valuations. Yes, there will be some cool offs which we saw the last two-three days a lot of these companies corrected. But again, as I said, this will more be an opportunity for the next two-three years. It now depends on your horizon. If you have a three-month, six-month horizon, yes, some of this probably could go through a correction. But if you are here for the next two-three years, I think most of these companies are going to do well be it Siemens or an ABB or a Cummins for that matter which came out with an extremely positive type of commentary. So, most of this I think are going to be positive going forward.
What are your preferred calls within the pharma pack?
Devang Mehta: So, we actually like a couple of ideas and couple of segments. So, MNC pharma is one segment where we have been sort of buying a company called Abbott Laboratories since a long-long time.

Now, this is again more of a health tech company right from addressing the thyroid drug, the Thyronorm to across the spectrum it is present where there is a lot of innovation required. There are not much of a margin compression issues.

This is a company where margin keeps on generally improving the sales as well as the profitability keeps on improving. We have liked this stock since long and we still hold it for a lot of clients and I think this is something which is very interesting.

The second segment, again, is something very innovative. So, it is a very small company, not recommending, but it is in some of our portfolios, a company called Gufic Biosciences, around 3,000-4,000 crores of market cap. But it is more of an innovator which gets into sort of new segments and it is still not present in the US. It is more a domestic as well as certain other countries where it serves and the capacity is almost full to the US market where it will probably develop over the longer term period.

But both these companies are excellent in terms of their ROE, ROCEs. Both these companies are extremely-extremely low on debt and Abbott which I talked about is a negative working capital cycle type of company. So, yes, we like this type of core businesses rather than getting into anything which is more adventurous or which is more sort of risky in the current environment.



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