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Mahantesh Sabarad, Independent Market Expert, says “business outlook for power generation looks better, but not necessarily for power distribution companies. A lot is happening on the PSU stocks, not just power stocks and also in the railway stocks which are taking them beyond comfort valuation. Now what is happening on the power stocks is we will, after a long lull, see a bit of a capex phase coming in particularly on the thermal side which would help boost some of the generation companies because you will have newer capex being announced.”

Hero MotoCorp was not a bad set at all. The gross margins improved. They are talking about market share gain. People are looking forward to the performance of the premium segment, but that stock has taken a knock and a lot of these exaggerated moves are on the downside.
Mahantesh Sabarad: I do not really think these are exaggerated moves on the downside in the sense that there is a background to that. These stocks had rallied quite a bit in the last one odd year, something which took their valuations far too ahead with the upcoming moderation. Now Bharat Forge is talking of a moderation. You should understand that between the domestic revenue growth and the export revenue growth, the export revenue growth just does not exist.

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In fact it could potentially moderate into the negative territory and we might see inflation remaining entrenched and therefore having to work with higher costs and margins could also get suppressed.

What is your take on these power PSUs and not just financiers, I am talking about generation as well as financiers, Power Grid, NTPC of the world as well.
Mahantesh Sabarad: A lot is happening on the PSU stocks, not just power stocks and also in the railway stocks which are taking them beyond comfort valuation. Now what is happening on the power stocks is we will, after a long lull, see a bit of a capex phase coming in particularly on the thermal side which would help boost some of the generation companies because you will have newer capex being announced.

That said, as far as distribution is concerned, it is purely dependent on what the government would like to do in terms of the overall pricing situation. We have seen in the past how a company like a Power Grid’s tariffs are tightly controlled by the government and any adverse move related to that will quickly mean a collapse in the valuations, something similar is likely to happen especially given the fact that many of them have rallied quite a bit in terms of recent stock price rise. So, the business outlook for power generation looks better, but not necessarily for power distribution companies.

Last word on the pharma sector because that is clearly bucking the trend. What is your view on the likes of Aurobindo Pharma, Zydus Life, Dr Reddy’s if you track any of these names?
Mahantesh Sabarad: We cannot really track any of these names but generally speaking, the pharma sector tends to gain whenever the markets become a little jittery. As you are aware, they are termed to be the defensive stocks. Another development as far as the pharma companies are concerned is that the overall pricing pressure that was visible for many of them in the US market, particularly on the generic side, is gradually weaning off and there are new products that will start coming up in terms of launches for a lot of pharma companies. So, a bit of good news could be expected ahead on the top line side where pricing pressure having gone, new products coming in, we should generally see better growth on the top line and thereby aiding a bit of margin expansion. So, sectorally, all these headwinds that they had faced in the past are gradually going away for the sector to emerge better.

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