FIIs buying to bounce back in coming months; bank, auto stocks look attractive, avoid short-term trading By Manish Jain The one year has been quite interesting. Volatile and unpredictable, all elements of a thriller. The roller coaster of a ride has had its own share of heart burns. The Russia-Ukraine war led to rising commodity prices which in consequence led to slowing GDP and compressing margins. We quickly went from having no red flags in Nov ’21 to pretty much nothing going right in May ’22. However, every dark cloud has a silver lining, they say. July ’22 has been a breath of fresh air and most of the issues now seem to be out of the way. The recent aggressive rate hikes by the Fed has definitely led to significant demand destruction which in turn has led to a drop in commodity prices and stabilization of the crude oil prices. This essentially means that the earnings outlook for FY23 now improves significantly. We should expect a sequential margin improvement across companies and sectors in the coming quarters. India to remain the world’s fastest growing leading economy The monsoons have set in nicely. That is also some good news and should have multiple implications including improving demand outlook and softening food inflation further. The showing data is already showing significant improvement. Overall, all things remaining constant, India should continue to remain the world’s fastest growing leading economy for some time to come. If things go our way, we should be bigger than Germany in a couple of years and top US$5trillion in 5-6 years, making us only the fourth country ever to achieve the milestone. This essentially means that the worst of selling is now over. The momentum has already been broken and things have started stabilizing. We would expect India’s share in emerging markets to improve and FII buying to come back in a big fashion in the coming months. Key sectors to look at So, what sectors are we looking at? First is banks. Large private sector banks are a good bet. Valuations are comfortable, loan growth is looking good and asset quality continues to remain strong. Most importantly they have been able to dodge a bullet as far as the interest rate impact on the treasury book is concerned. The second appealing opportunity is auto. We believe with rural growth outlook improving, chip shortage issue getting near resolution and metal prices declining, it’s finally time to invest in automotive businesses. Discretionary consumption is again something that should continue to remain relevant for years to come. As affluence sets in, the middle class and the upper middle class expands, lifestyle changes should be quite strong and permanent. Also Read:Equity mutual funds inflow drops 42% in July, debt funds see net withdrawals amid volatility, inflation woes Focus on long-term investment While we do advise buying into equities right now, we also believe in a couple of things. One strong recommendation is to invest to create wealth. That means to buy and hold, long-term investment and avoid short-term trading mindset. The second rule is to always invest in quality. That way, you are always protected when things take a downturn. (Manish Jain, Fund Manager, Coffee Can PMS, Ambit Asset Management. Views expressed are the author’s own.)
The Japanese pharma major is also filing a plea before the Delhi HC seeking appointment of forensic auditors to analyse transactions involving IHH, Fortis Healthcare and RHT, Singapore, as directed by the HC on October 18.
The development is likely to create legal hurdles and delay the proposed open offer as IHH had recently told FE that it could only go ahead if Sebi agreed with its legal interpretation that the SC’s September 22 order has lifted all such restraints.
IHH managing director and CEO Kelvin Loh told FE on November 9 that the company would like to go ahead with the open offer “as soon as possible” as there has already been a delay of four years. Ravi Rajagopal, chairman of Fortis Healthcare, had added that their legal counsel has advised that the company can go ahead with the open offer as the SC order has disposed of various appeals, including the suo motu contempt. “We have represented to the Sebi and the matter is with them,” Rajagopal had said.
However, legal observers told FE that the matter is not that straightforward and simple as the Delhi HC has to take the final call on the matter of open offer as well as whether a forensic audit has to be done in the share sale which was executed in 2018.
Also Read: IHH to float open offer for Fortis if Sebi concurs with our legal view: MD & CEO
Loh and Rajagopal had said the possibility that the matter may take a different turn when it comes up in Delhi HC cannot be ruled out.
IHH had in July 2018 acquired a 31% stake in Fortis Healthcare for Rs 4,000 crore through the bidding route. It had also earmarked Rs 3,000 crore to make an open offer for an additional 26% to the public shareholders as required under the law.
Daiichi has written to Sebi that the SC in its September 22 order had asked the HC to consider ordering a forensic audit into the dilution of FHL shareholding, repeated violation of undertakings and assurance by former FHL promoters — Malvinder and Shivinder Singh — and the transaction between FHL, IHH and the clandestine transfer of Rs 4,666 crore to RHT Singapore.
Daiichi is “severely prejudiced” with IHH’s clandestine attempt to subvert the status quo order directed by the SC on December 14, 2018, and September 22 with respect to the conduct of forensic audit and the pending proceedings before the HC by purportedly consulting regulatory authorities, including Sebi, on the proposed FHL-IHH transaction. It has reiterated that the FHL-IHH transaction was currently sub-judice before the HC where FHL is also a party, its solicitors, P&A Law Offices, have said in the letter.
“We further state that any such attempt by FHL and/or IHH to proceed with the FHH-IHH transaction would be in direct contravention of the HC and SC orders,” the letter sent by the law firm has stated. Daiichi Sankyo is pursuing the enforcement of Rs 3,500-crore arbitration award against the Singh brothers pronounced by a Singapore tribunal for concealing information when they sold Ranbaxy Laboratories to it for $4.6 billion in 2008. The apex court had in 2018 put on hold the sale of Fortis Healthcare to IHH on a contempt plea filed by the Japanese drugmaker against the Singh brothers.