Sandeep Raina's 3 pharma picks: Sun Pharma, Strides and Natco

In a chat with ET Now, Sandeep Raina, Deputy Vice President, Edelweiss RCM Research, says IT is one of the safest sectors to be in right now. Edited excerpts

ET Now: Just struggling to really figure out what is going on with the market and whether or not this fresh 52-week low that we have stuck today is just the beginning of some more vicious pain to come. So let me just bring up individual sectors. What about PSU banks, do you foresee further pain from here onwards? When it comes to PSU banks, most of them seem to indicate that in the next quarter also there is going to be some pain by way of asset quality. But has it not been factored into price or are we going to see significant downside in the stock names from the current levels?

Sandeep Raina: Specifically for PSU banks, it is a stay away. As to whether the fall has been factored in to price or how much downside can we expect, it is very difficult to tell because in case of most of the small PSU banks, their market cap is even less than the kind PSUs are having right now. So it is a very tough call right now to say how much money the government will pump in, if at all. The best advice is just stay away from them. We should not touch them. I will divide the banking space into four parts. One is your NBFCs, the BFSI sector, PSU banks and then private banking. Private banking can be divided into two parts – corporate lending banks and retail banks. In fact, we are not very happy with the corporate private banks also. The retail banking sector is still doing fine as is some part of the NBFCs.

ET Now: Looking at the cement sector, we are likely to see soft pricing eat into the Q3 numbers. What is the call on the cement space? Do you think it is largecap versus midcaps? Is there a big demarcation over there?

Sandeep Raina: Cement as a sector is very zone specific. So companies which are largely into the western part of the country, we do not want them. We do not want those in the North either. Demand wise, companies in the eastern part of the country are very robust. To some extent, companies in south India are also doing well. There is a company called Dalmia Bharat which is largely into south and western parts of the country. We are bullish on that company given the current scenario. Rest in all other counters, we are trying to wait and watch.

ET Now: What would you tell your clients is the right approach? To keep the powder dry, sit on cash, wait for the market weakness to settle down or do you think at this current price, there is a lot that is looking attractive?

Sandeep Raina: At this point in time, we are at a 52-week low. Having said that, what we are maintaining from last August is that we should have 20-25 per cent cash. Now there are lots of queries that is coming out. If somebody says he has Rs 100 to invest and what he should do, the answer to that would be if you have zero percent allocation right on equity, please increase your equity allocation, maybe 20-25 per cent and that too over a staggered period. However, if you are already in the market, close to 80-85 per cent or maybe 90 odd percent, please do not participate further in the market. You should be on cash and it is very important right now that we actually revamp all our portfolios because what did well for the market in last one-two years, the same thing will not happen going forward also. So it is very important that we revamp the portfolio. One, it is very important we sit on cash and second, we create cash in the market.

ET Now: What is your take right now on what is going on with Aurobindo Pharma? I mean the latest HSBC report just highlighted the four observations for Auro Pharma. But just look at the way the stock has been tanking right now?

Sandeep Raina: Right now, I do not have a view. See these observations were there before. Today the fine prints have come but I do not know what exactly those fine prints are. So after reading that I can take a view. Overall, if you have seen pharma sector and not specifically Aurobindo Pharma, there are lots of things that are happening on the pharma side. I think we should avoid the company which will be in the trouble. Let us say for example, Sun Pharma had that problem with their Halol Plant but that is a very small thing and we are bullish on Sun Pharma going forward. In the pharma space, there are two-three stocks that we are pitching – one is Sun Pharma, the second is Strides and we also like Natco. Natco is one company which is hugely R&D driven and has a very good pipeline. These are three stocks we are pitching for in pharma. The rest, we are avoiding in pharma.



ET Now: The point you were making right now is that it is most prudent to just be sitting on cash and waiting for the market to settle down. Is that the view when it comes to the IT sector per se as well? The top IT bosses that we have been speaking with, be it Chandrasekaran from TCS or CP Gurnani, have been saying that they will be able to beat the Nasscom guidance. What Cognizant has done by no way indicates what the Indian IT majors are going to do. Do you think it is the right time to dabble in IT stocks or is that a no-no for you right now?

Sandeep Raina: IT would be one of the safest sectors to be in right now given the fact that currency is closing at Rs 68. Given that fact, what we have to also understand is the business model. There is lot of transition taking place in IT sector. So a stock which was a darling of the market two years ago, is not the darling of the market today because the transformation has happened. So in IT also you have consultancy, services, you have products. So a lot of product companies are doing well of late. Now in IT if I talk about, there are few companies which like Infosys is number one choice of ours because we think that this company is changing actually. They are doing well in consultancy, in services, in products. So that is one company which we like. However, there are lot of small companies also which looks decent in IT space, They are not IT, IT per se like NIIT is a company which we like but then they are into basically corporate learning. So there are two-three counters we like in this sector and HCL is also doing well. HCL is one counter which we can look at in the largecap space and rest we will kind of avoid because I will prefer these one over the other ones.