We just marked the Budget week and what are the standout sectors that are coming for you because while we were chatting with all the market experts, one such standout sector was really the oil and gas space and just on Friday itself, we have seen all the OMCs and the gas stocks, there was no stopping in that, almost 8% to 9% gain in largecap names like HPCL and BPCL. How are you seeing this particular rally and what is your view on the oil and gas space?
Well, as far as the Budget is concerned, I believe that there is an excitement around infrastructure and construction. I think that is where a lot of the capital expenditure which the government is planning will go. So, naturally, there is excitement. So, cement, construction, housing are the sectors where I believe there should be excitement and there is some excitement. As far as the oil and gas sector is concerned, yes, there is a lot of excitement and all these largecap stocks like BPCL, HPCL moved up significantly today.
But I am a bit cautious and I will probably advise investors also to be a bit cautious. While these companies have performed exceedingly well this current financial year, the next financial year probably will not be as good. There is a reason for it, because all these companies are investing in energy transition and they are doing it rightly so.
But one has to remember that this will depress their earnings and they are building for the long term, so in the short term there will be challenges on the P&L, so that is one factor.
The second factor is we are heading into a central election and the global oil prices are volatile with conflicts going all around us, it can flare up at any point of time with the slightest of trigger and if that does happen, the increase in oil prices will have to be kind of handled and borne by these companies. The government will definitely not come and increase oil prices till the elections are over at least. So, I would be a little cautious. Yes, the fact remains that they are very attractively valued vis-à-vis other PSUs. There has not really been a massive rally in these oil marketing companies if you compare them with railway, defence and other metals and mineral stocks. So, the excitement is understandable, but a bit of caution is warranted as well, that is what I believe.Let us talk a little bit about FMCG because we did have Titan that came out with its numbers in the week that went by. Mixed set coming in for Titan. But going ahead, we have got major Nifty companies among the FMCG pack that will be coming out with their quarter three numbers, the likes of Nestle, Tata Consumer, Britannia. So, what is your outlook when it comes to these FMCG earnings? Are you expecting a decent set of numbers or do you think it is going to be rather mixed?
It will be mixed. What has happened is, we have seen a couple of FMCG companies, particularly Dabur and Godrej Consumer post decent sets of numbers and in both these sets of numbers one thing was becoming clear that the green shoots are visible as far as rural consumption is concerned and that is very-very reassuring.
I would read it this way that probably from Q4 onwards we will see rural consumption coming back in some form and fashion which will help all FMCG companies, particularly companies having significant rural exposure, which will include Britannia, ITC, HUL as well as, of course, Dabur and Godrej Consumer and Nestle also will benefit.
As far as Q3 is concerned, I think it will be a mixed bag. We expect a strong set of numbers from Nestle. Britannia probably will continue to remain subdued on account of competition and the pressure from the other companies manufacturing similar products.
Tata Consumer has a lot of moving parts, so it will take a little more time to settle. They are in the right direction, but I think it will be better if we monitor Tata Consumer on a yearly basis rather than a quarter-on-quarter basis. I am positive on Tata Consumer, but I would not expect anything great from Tata Consumer as far as Q3 is concerned.
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