Prime Securities’ Jayakumar Says Pharma A Safe Bet Amid Volatility 

The Indian equity markets have erased 2018 gains as capital outflows continue on expectation of rising rates in the U.S., aggravating the selloff caused by surging crude, a weaker rupee and liquidity fears in the money market.

For N Jayakumar, managing director of Prime Securities, this is the best time for bottom fishing, especially in the pharmaceutical sector. With 60 percent of the market floating at 50 percent or lower than its all-time highs, he said pharma stocks have been able to withstand volatility.

Many of the pharma stocks have corrected over the last several quarters while addressing regulatory challenges, Jayakumar said in an interview with BloombergQuint. “It will be the No. 1 space since the stocks have not adjusted to the dollar-rupee potential at a 74-plus level.”

Nifty 50 Index is trading nearly flat compared with the start of 2018, erasing gains as the current account deficit widened because of rising oil prices and a weaker rupee. Foreign investors have pulled out nearly Rs 80,000 crore from both debt and equity markets as the U.S. Federal Reserve has reiterated its resolve to keep increasing rates. The Indian benchmarks fell sharply since mid-September when defaults by Infrastructure Leasing and Financial Services Ltd. triggered a liquidity crunch for non-bank lenders.

Jayakumar said all hope is not lost for non-banking financial companies which are trading at 1-1.5 times their book value, he said. “As credit picks up, they could give you upsides from valuations.” Still, at the current levels of the equity indices, he expects that pharmaceuticals and public sector banks could “give surprise upside returns”.

Other Key highlights from the conversation:

Market Volatility

• The biggest global factor affecting the Indian markets has been rising interest rates in the U.S. and declining liquidity.
• The two factors affecting the market are foreign flows or outflows, as the case may be, and oil prices.
• Micros are looking far better and macros.

Crude

• Commodity prices are weakening and crude is no exception.
• Nothing affects the Indian market more than oil prices.
• Nothing moves Indian markets on a index basis more than a weak crude.
• Brent crude prices will most likely revert to $75 a barrel by the last quarter of this year.

Portfolio Purchases in NBFCs:

• NBFCs need to be given a liquidity lifeline.
• Regulatory changes need to happen in a staggered manner or the consequences of a liquidity squeeze could be disastrous.
• All is not lost for the NBFC space and there will be an anchor for growth.
• Most of the companies are trading at 1-1.5 times the book value.
• As credit picks up, they could give you upsides from these valuations.
• Pharmaceuticals and state-owned banks could give surprise returns.

Top Themes With A Three-Year View

• Businesses related to airports seeing a visible, consumer-related growth.
• The airport sector is here to grow.
• Ancillary services, along with airports and aviation stocks, is a great investment from a two- to three-year perspective.
• Public sector banks are a great investment.
• The frontline stocks are quoting below the book and could give decent upside returns from here.

Watch the full interview here: