India’s second-largest fund house ICICI Prudential Mutual Fund is overweight on the telecom, pharmaceutical & healthcare and automobile sectors. It believes that the consolidation in the telecom industry may double the industry’s revenue over the next five years. On the other hand, the valuation of the pharmaceutical sector looks reasonable due to the recent correction.
ICICI Prudential has highlighted that telecom major Bharti Airtel is the top pick from the sector. In the pharmaceuticals and healthcare space, players like Sun Pharmaceuticals, Dr Reddy’s Laboratories, Lupin, Cipla and Alkem Laboratories are among the top picks of ICICI Prudential.
With management focus on gaining revenue traction, cost controls, optimisations and business continuity, Sun Pharmaceuticals is expected to do well, according to market watchers. The company has higher EBITDA margins and ROCE ratios as compared to its peers.
The money manager further highlighted that Mahindra & Mahindra (M&M) is among the top picks in the automobile space. It is followed by Maruti Suzuki, TVS Motor Company, Tata Motors and Eicher Motor.
M&M is one of the largest vehicle manufacturers by production in India. The pipeline of new products is strong followed by a good market acceptance of “XUV 700” and “Thar”. The company has seen sharp EBIT improvement driven by increasing share in both SUVs and LCVs.
In general, the auto industry has been plagued by multiple headwinds –margin pressure due to higher input costs owing to a rise in commodity prices, higher overheads on vehicle production, rising inflation and fuel prices and supply chain disruptions due to geopolitical tensions.
However, going forward, ICICI Prudential Mutual Fund believes that the pricing and supply chain disruptions are expected to normalise coupled with expected auto rate hikes.
On the other hand, the mutual fund player is underweight on themes like consumer non-durables and oil, gas and petroleum.
“The widening gap between the Nifty 50 and Nifty FMCG PE indicates higher valuations of FMCG stocks. The sector growth has been erratic in certain categories. An unprecedented rise in input costs due to the Russia-Ukraine war and inflation has hurt gross margins. The rise in price hikes by companies has impacted volume sales,” it said, adding ITC is the top pick from the consumer non-durables space.
It is followed by HUL, United Breweries, Britannia Industries and Asian Paints. ONGC, Reliance Industries (RIL), Gail (India), BPCL and Indraprastha Gas are among the top picks of the mutual fund house from the oil, gas and petroleum space.
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