Not pharma, for next 1-2 years focus on this sector: Pankaj Pandey

Talking to ET Now, Pankaj Pandey, Head Research, ICICIdirect.com, says bullish on the entire infra space and the road segment right now from L&T to KEC International to NCC.

Edited excerpts:

The newsmaker today has to be Sun Pharma after it received a US FDA approval for its psoriasis drug TildraKizumab, the first new drug approval for India’s largest drug maker. What kind of an upside will this generate for the Sun Pharma stock?

This particular news is in line with the management commentary earlier and we expect that this should add about Rs 38 per share to its value. In the overall pharma space, there can be a bounce of 25%-30% odd given the fact that all these stocks have corrected more than 50% odd. So, there is a possibility of a bounce-back but structurally it looks like all these stocks are past their prime.

Beyond this 25%-30% move, one needs to look in terms of how the growth would pan out and how the US would behave as a market for them. Structurally, one should not be overtly bullish but if somebody is looking for a 25%-30% bounce, then that is a possibility. This particular news is in line with the management guidance. This is why we would not expect rerating of the stock because of a specific news but it is a good news for the stock definitely.

When we started the year, everyone was convinced that one should buy corporate banks because the economy is on a turn and more than retail banks, corporate banks would do well. Suddenly, corporate banks are taking a back seat whether it is ICICI Bank or Axis Bank or the State Bank of India. Were the market assumptions of revisiting corporate banks slightly incorrect or is this a good time to still add into your positions in corporate banks?

In the last three-four odd months, the 10-year yield trajectory has gone up and that’s why there is a challenge for corporate banks especially on the treasury income side. The asset resolution -- given the fact that it is a a good problem -- will take slightly more time and then you had cases in PNB which has sort of impacted the sentiment. As a result of all this, the kind of delta we were expecting in terms of the bottom line growth for some of these corporate heavy banks, will take a knock and which is why it is getting reflected in the index as well.

This year, we were expecting overall Sensex EPS to grow by at about 10% but after SBI’s last quarter, with stress continuing, probably the Sensex EPS will remain flattish for this year. But beyond PNB, if you look at the kind of correction what we have seen, it is a good buying opportunity because retail banks are largely priced in. If somebody is looking for a juice with volatility, the corporate heavy banks still make the case.

We were talking about NHAI before you joined on board. What about some of these road companies? IRB has won a highway contract from NHAI. Do multiples in this sector stand corrected or would valuations over here be a concern?

If you look at it in terms of tendering and ordering, road is one of the major segments where we have seen a steady inflow of tenders as well as ordering happening. If I recollect the numbers, right out of the overall tender of about 8.5 lakh crore, between 5 and 6 is what the road segment is contributing.

From that perspective, road as a segment remains very strong. In fact, we like the entire infra space because right from L&T to KEC International to NCC, a number of host companies have seen in the last quarter that management commentary across most of the players have been pretty positive in terms of order inflows with margins remaining at decent levels.

There is improvement in ROCs for most of these companies though some have moved up. Given the pipeline of ordering or tendering, there is still some juice left in these stocks and for the next two or three years, these should do well. This is the only space to look at for the next one or two years.