Should you buy pharma, real estate stocks? Shibani Sircar Kurian of Kotak MF answers

We believe that after the pain that the real estate sector has gone through for a long time, things seem to be improving at the margin within the affordable housing pack and certain ticket sizes, says Shibani Sircar Kurian, Senior EVP, Fund Manager & Head -Equity Research, Kotak Mahindra AMC

On Dabur performance
I would not be able to comment on a stock specific question. However, for the consumer pack as a whole, the top line growth has been fairly healthy. Of course, there has been some impact quarter on quarter because of the Covid situation and on the margin front also, we have seen some impact of the raw material cost pressures impacting margins though in some cases, price hikes have been taken. Not all of it has resulted in offsetting the impact of the higher raw material cost.

For the consumer pack as a whole, we are looking at companies which have a strong product portfolio and are gaining market share. However, we are also mindful of the fact that valuations are not cheap. In fact, valuations continue to remain elevated and therefore we are trying to find companies where we have valuations on our side and where growth prospects in terms of market share gains continue.

Are the best of the diagnostic company gains behind us?
I would agree to some extent because of the kind of fillip that some of the diagnostic players got because of the Covid situation all of last year. Now that will start to wane a bit. Also, valuations have moved up quite sharply post the fantastic performance seen across the board for some of these players.

As for the pharma pack, our approach has been extremely stock specific in nature. We are trying to identify companies where there is a strong product pipeline. Another factor that has now come to the fore is the fact that the domestic formulation business has started to grow once again both on the acute and the chronic side which was impacted all of last year because of Covid. However, incrementally, growth seems to be coming back with healthy industry growth as shown by the monthly numbers. We find a lot of names in the domestic space which are favourably placed both from a growth as well as valuation perspective.

Finally in the US markets, there has been some near term concerns about US generic pricing. Given the kind of price pressure that we saw over the last three-four years, the pricing scenario seems to be stabilising at the margin. Also within the pharma pack, there are certain opportunities within the overall healthcare side and hospitals.

Hospitals which got impacted because of Covid are now seeing footfalls returning for normal surgeries and care. Therefore, incrementally, some amount of growth is returning in that segment as well. It is pretty stock specific but there are clear opportunities within the entire sector.

On real estate
We have been positive on the real estate space. This space has seen three tailwinds; one is that clearly overall affordability has gone up. Secondly, interest rates continue to be extremely low and that is aiding further growth. Finally, the policy initiatives are supporting the entire sector. We have seen a fair degree of consolidation in players with stronger balance sheets. We believe that after the pain that the real estate sector has gone through for a long time, things seem to be improving at the margin within the affordable housing pack and certain ticket sizes.

Also, we believe segments which are allied to real estate which includes cement, home building are likely to benefit going forward. Overall, we are very positive on the household capex which is essentially real estate and we believe that over the next couple of years we will possibly see an improvement in the overall real estate cycle.