When the fundamentals are right, we have all the reason to cheer. Manoj Garg, Research Analyst, Emkay Shares and Stock Brokers chats with Nandini Patwardhan on the Sensex boom.
What is your view of the stock markets?
The market is overall bullish and companies who are likely to do well, are definitely going to get an advantage out of it. This is because, ultimately the stock market movement depends on the earning growth of the companies and the business prospects of the companies. So if the stock market is going up, there are all chances that pharma stock will also move up provided that the earnings are intact and the fundamentals are strong.
What are the factors that influence the rise and fall in stock prices of a pharma company?
Again, there are two things that make a difference-the performance of the company and the perception of the people about the company. If the people are positive about the earning potential of the company, quite obviously, they will give a better valuation to the company.
What about the case of linked economies?
We have a lot of FIIs that invest in the country. According to recent data, the FII investment is around Rs 40,000 crore, which is through mutual funds and insurance companies, their investment is in the range of 10-14K crores. So if any FII takes out its investment from the Indian economy, it will have a negative impact. But because our economy is surging, we tend to be a little immune from whatever is happening in the global markets. However, since money flows very fast, so any impact right now in the US or Asian markets will have an impact in Indian markets
Does this Sensex boom remind you of the Harshad Mehta times?
If you compare this with the Harshad Mehta times, you can observe that the growth that is happening today, is on the basis of fundamentals. It is not because of the boom, where someone is artificially trying to manipulate the markets. If one observes the GDP growth in the last four years, one may find that India has been consistently growing at 8-9 percent and going forward, people will expect the same rate to be maintained.
Today if you see the multiple of China, it is somewhere in the range of 40-49, because many people think China is going to grow much faster. In India, we have a multiple of 20-21. So as long as the fundamentals are strong and the growth is positive, I don’t think we should be concerned about the 17,000 or 20,000 mark. When the fundamentals are right, we have all the reason to cheer.
What about the sudden surge in last few days?
That means it is not built up artificially, it is based on fundamentals and the sudden rise that has happened, is probably because the US has cut the Fed rate by almost 50 basis points, that means the money in the US markets will probably flow in the emerging economies. Then there would be more investment in emerging markets and if you see the sectors in emerging markets, which are domestic oriented, as against US where there can be a short term recession. There are three to four sectors that have done well. One is realty, the second is banking, third is oil and explorations. And when those sectors are doing well and when there will be easy money, people will expect the interest rate in India to come down. Hence, the local sectors, which have more presence in domestic industries are performing well. And this is likely to continue as fundamentals are intact.
What is the future of pharma industry?
It all depends on the business model of the company. If you see the early 2000, it was the era of absolutely integrated companies which has some backward to forward integration like Sun Pharma, Ranbaxy, Dr Reddys Laboratories (DRL), Cipla. This era of 2006, will be the era of companies into the contract research space. There is Dishman and Nicholas Piramal India limited (NPIL). Going forward, companies who will build their capability in R&D are going to be in an advantaged stage. But I think companies like Glenmark, Sun Pharma, NPIL, DRL, etc are really building their capabilities.