Among the three insurance stocks — HDFC Life, ICICI Prudential and SBI Life — which way would you lean?
We have a very positive view on Max Life because of the big valuation gap. With all the regulatory issues getting cleared, there was an expectation that the gap would get breached. It has started happening now. At the same time, the growth vis-à-vis other players is better for Max, so that remains our preferred pick. The other one that we like is SBI Life. Despite the strong growth in their new premium collection, the stock continues to trade at a discount to HDFC Life, which we think is unwarranted. So within the life insurance space, our preferred picks are Max Life and SBI Life.
What is your take on liquor as a category? Most liquor stocks have been buoyant in the last few days.
We are extremely positive view on the spirits space per se. The companies are delivering a decent volume growth. Once you see a little bit of normalcy or revival in the economy, I think the volume growth can get even better. That definitely boards well for names like United Spirits, UBL and even for smaller names like Globus Spirits, Radico, etc.
From an investment perspective, we at Motilal Oswal have a positive view on United Spirits because of the kind of presence that it has and the kind of balance sheet repair that has been done in the last two years. You will see more premiumisation over the next 1-2 years when margins can be much higher. This is one space where after a long time we are seeing revival. People are underweight on the sector in their portfolio. This could be a very interesting space to get in for the next 12 months or so.
Which are the top three midcap stocks that you would recommend one to buy at the current price?
In our strategy note, we have come up with our preferred midcap ideas.
Things were challenging for Aditya Birla Fashion because of the nature of their business in the retail space. They have done extremely well in terms of topline growth even during the lockdown. They have cut down their costs. So I think this company can do much better in the revival phase.
There is a small company called Orient Electric, which is a consumer electronics company. We think that in a reasonably good environment, the volume growth for Orient Electric can be better than larger players like Crompton, Havells, etc. That is something we find very interesting.
Apart from that, we also like JK Cement. At Indian Hotels, things have have been so difficult but we think that over the next two years, this entire unlock theme will plat out and no bookings will be available. People will go for revenge outing. I think Indian Hotels could be one interesting stock to look at.
The entire diagnostic space is growing at 10-12%. It is a business where the complexity is very high. Why are these stocks commanding PE multiples of consumer companies now?
That is partly because you have only two large players. Besides Dr Lal Path Lab and Thyrocare, the rest are not that big or they do not have that kind of penetration level. This opportunity can be very large in the Indian market. The market cap of Dr Lal Path Lab or Thyrocare is extremely low. There could mergers and acquisitions. The overall view is positive on the entire space. We do not have specific coverage yet, but Dr Lal Path Lab and Thyrocare are good ones to look at.
