Selectively position in largecaps, avoid over enthusiasm: Sudip Bandyopadhyay

“With their kind of truce with China for 90 days, with very reasonable tariffs on both the sides augurs definitely well for US economy and the global economy as well,” says Sudip Bandyopadhyay, Group Chairman, Inditrade Capital.Let us talk about the markets because a lot has transpired over the last one week or so. You have seen the entire market construct change. How should one actually position themselves right now?
Sudip Bandyopadhyay: Yesterday, what we saw was a one-time issue. Obviously, it was looking little overenthusiastic the market yesterday, so a little bit of correction today was expected and we are seeing pretty much that getting played out. However, a lot of positives are there in the market and we cannot discount that.

The entire trade war scenario which was developing around us with the US president going on about it, things are cooling down a bit. With their kind of truce with China for 90 days, with very reasonable tariffs on both the sides augurs definitely well for US economy and the global economy as well.

Of course, the peace which prevails between India-Pakistan now as far as geopolitical situation is concerned is most welcome. So, under these circumstances fii buying in Indian markets will come back and that is what we are seeing.

It may not happen at one shot, it will happen gradually, and we have to remember that in spite of the correction which we had seen earlier and what we did see today I do not think Indian market is cheap, so we have FII coming, we will have FII coming, but they will be careful and they will be selectively entering Indian stocks.

I tend to believe that largecaps will generally have increased share in FII portfolio compared to even what they had earlier. They always had a bias towards the largecap, but the bias will be more pronounced now considering the fact that largecap is still available at relatively better valuation compared to the attractive midcap and smallcap shares.

I wanted your view on speciality chemical space because the fact that you saw this entire Trump tariff announcements and you had the shift back again to the China plus one strategy which Indian speciality chemical players would have likely benefited. Now that you have some sort trade to truce that is in place when you talk about US and China, what does this mean for this entire space?
Sudip Bandyopadhyay: I do not think anything changes as far as this space is concerned particularly on China plus one. China plus one started much before this tariff war began in early April. The need for diversification out of China and having an alternate manufacturing and supply base was felt because of geopolitical concerns, much before the tariff war started, so that rationale continues to remain and most global manufacturers are looking forward to having a China plus one situation, definitely.

Now probably this tariff war had it continued would have led to completely dropping off China, that was not really feasible at least in the short to medium term and probably that is not ever going to happen the way things are moving, but China plus one logic for Indian speciality chemical manufacturers does remain and the opportunity is definitely there.

Now a lot of things happened over the last couple of years whereby this sector was really bombed out. The performance was bad because of multiple reasons. There were glut in the market. China was dumping products in the market and there was very clearly lack of demand for their products. But things are changing.

The supply overhang is over and demand is increasing and as far as the performance is concerned of speciality chemicals, chemicals, agrochemicals, if you watch carefully the Q4 numbers things are definitely showing signs of improvement. From an investment point of view, if somebody is an aggressive investor, it is probably worthwhile looking at buying some of the leading stocks in these sectors. I can talk about UPL, it is a good buy from a one-year kind of a hold perspective, you can look at SRF it is a good buy, so on and so forth.

To your mind where do you see leadership actually changing hands if the up move were to stay by in the markets?
Sudip Bandyopadhyay: Very clearly leadership has come back and is coming back to BFSI. Pretty much BFSI will lead the rally and there are multiple reasons for that. Overall BFSI was never overvalued like many other sectors where the valuation comfort even now is there in BFSI. The leading BFSI companies particularly the private sector banks are doing exceedingly well on all parameters. Pockets of BFSI like gold finance are stabilising and opportunity for further improvement is there.

Insurance is one pocket where a lot of reforms have come in and are coming in. So, from a medium to long-term perspective that does look exceedingly well. So, overall BFSI sector, of course, you have to leave out these unsecured lenders microfinance companies, etc, for the time being considering the asset quality challenges which they are facing, but by and large BFSI looks good.

Apart from BFSI the other segment where I have been positive is I just mentioned about chemicals and speciality chemicals, things should start looking up in that space.

The other sector where I have been having positive view is metals. It is volatile and it will continue to remain volatile because there are a lot of pulls and pushes as well as the global factors which does affect metals, but metals by and large with the kind of demand which domestic market is depicting and the kind of demand which expectedly other global markets including China will have metals should be in for a good time in this current fiscal.

Let us put the spotlight on the aviation and the hospitality space given the fact the way how things have transpired, this sector was among the worst hit. What is your take now? How should one analyse if you have to go ahead and invested in it for the longer term?
Sudip Bandyopadhyay: Definitely from a long-term perspective hospitality industry does look exceedingly good and the correction which happened on the back of this conflict was a great opportunity to accumulate some of the good quality hotel stocks.

Indian Hotels came out with a decent set of numbers and post that there were significant correction on account of this operation Sindoor. At current level, definitely it is worth buying. Look at Chalet Hotels, again, at current level it is a good buy, Lemon Tree, pretty much all the hotels if you are talking about long-term all these are good buy. Travel and tourism volume increase is here to stay and we will see continuous upside in this industry which will benefit the hotel industry.

As far as aviation is concerned, while the pretty much the same set of factors do remain, but valuation is a little rich and we are going through a situation where aviation turbine fuel prices are at lower level. Any change in aviation turbine fuel prices and movement towards upward movement of ATF prices does affect profitability in a significant manner. So, I will be cautious on the aviation stocks, particularly the one stock which is worth talking about is InterGlobe Aviation. Valuation looks rich, performance-wise there is nothing to complain, but I would not venture to buy at current valuation.