Dipan Mehta: Bullish on these 2 auto ancillaries: Dipan Mehta

0
12
Dipan Mehta: Bullish on these 2 auto ancillaries: Dipan Mehta

Download Android App NOW My Jio xyz google android app  Dipan Mehta: Bullish on these 2 auto ancillaries: Dipan Mehta MyJioxyz google play logo

Reliance, TCS and some of the other largecap stocks benefit from direct inflow from FIIs, Dipan Mehta, Member, BSE & NSE, tells ET Now. Mehta is gung-ho on the

auto ancillary sector, especially Motherson Sumi and Minda Industries.

Edited excerpts:



Why is Reliance moving the way it is? There is no fresh news development but post AGM, Reliance has been on a tear. What has propelled the stock higher by 15% in less than two months?


First of all, the numbers for the first quarter were quite impressive and management commentary also positive. More importantly, it is the liquidity flows which have made a difference. We have seen the FIIs turn net buyers in August and Reliance usually is their favourite.

Some amount of benefit comes to Reliance whenever FIIs want to invest in a country per se. Irrespective of specific investment themes, they usually buy the largecap Companies. So, Reliance, TCS and some of the other largecap stocks benefit from direct inflow from FIIs. The outlook is stable and investors are very positive about the other businesses — retail and digital — that eventually they would scale up and add value to Reliance Industries, which is why the stock has rallied the way it has.

Looking ahead, what is the story for auto ancillaries? Do you have a conviction idea there?


All the segments of the automobile industry are doing well, right from tractors o two-wheelers — the low-end entry level as well as the premium segment. That trend is getting extrapolated into auto ancillaries. The advantage with auto ancillaries is that a lot of them are highly export-oriented. So, they are benefitting from rising volume in the domestic market and the replacement market, as also exports which are doing pretty well in terms of replacing existing auto ancillary manufacturers in the global geographies.

Coming specifically to stocks, we have a couple of very high conviction ideas in the auto ancillary business. The first one is Motherson Sumi. We all know the story about the company acquiring plants and Companies overseas and then turning them around and improving the ROI over there.

A second company which astonished us with the results was Minda Industries. Usual disclosure, we and our clients are invested in both those Companies. Minda came out with a spectacular set of numbers. What we like about Minda Industries and Minda Corporation is that they are more in the premiumisation trend. They are not so much in engines and other transmission related products but more with the ambience and entertainment system and all the other various aspects of the passenger vehicles or two-wheelers, which are in greater demand as far as the consumers are concerned.

So, we are very positive on auto ancillaries because of the trends that are there in the automobile industry. The two top picks are Motherson Sumi and Minda Industries with the usual disclosure that we and our clients are investors.

Is there merit in revisiting some of those good old pet themes which markets were excited about two years ago, like defence, railways or irrigation? These are themes which the market bought into in 2014 and 2015, assuming that big ticket reforms would kick in. Now we are realising that nothing has changed and nothing will ever change for some of these sectors.


Why talk about last four years? I have been in the market for 30 years and these investment themes have always come around to disappoint investors. I do not recollect a single period of time where a defence manufacturing company or a railway manufacturing company has created a great deal of wealth for investors and turned out to be a consistent multibagger.

From time to time, these Companies come into fashion and then they go off because the performance just does not follow through. This time around is no different. It is best to completely avoid such businesses. They are in a sense based on tenders and usually do not have very high operating profit margins. There is a great deal of volatility in their earnings because of the order flow and many times government policies, procurement schedules keep on changing which cause havoc with quarterly numbers. This is not something which investors generally prefer. It is not that valuations are low single digit PE multiples or great value buys. It is best to avoid anything to do with defence not only now but for the next 10-15-20 years as well.

You can see the track record for last 30 years, nobody really has benefited from this defence production in India.

if(geolocation && geolocation != 5) {
!function(f,b,e,v,n,t,s)
{if(f.fbq)return;n=f.fbq=function(){n.callMethod?
n.callMethod.apply(n,arguments):n.queue.push(arguments)};
if(!f._fbq)f._fbq=n;n.push=n;n.loaded=!0;n.version=’2.0′;
n.queue=[];t=b.createElement(e);t.async=!0;
t.src=v;s=b.getElementsByTagName(e)[0];
s.parentNode.insertBefore(t,s)}(window, document,’script’,
‘https://connect.facebook.net/en_US/fbevents.js’);
fbq(‘init’, ‘338698809636220’);
fbq(‘track’, ‘PageView’);
}

Download Android App NOW My Jio xyz google android app  Dipan Mehta: Bullish on these 2 auto ancillaries: Dipan Mehta MyJioxyz google play logo