Why has ONGC gone the way it has? What are markets so excited about?
The way the prices of both crude oil and gas have gone up is definitely a positive trigger for ONGC and Oil India. Unlike earlier scenarios, where in the event of a higher crude price, the government would probably have put more burden on companies like ONGC, this time the government has taken a more sensible approach and we have seen revision in gas prices which could help the realisations. There has also been better realisation for the oil part of it.
Apart from that, one must bear in mind that when we are in a commodity upcycle, people tend to prefer some of these names and even though the stocks would have really gone up in the last six months, on valuations front, they are still looking quite reasonable with a decent amount of upgrade possibilities given the way the prices are.
So from a dividend yield and valuation perspective, there is a comfort and there is hope that the government would not end up doing something which could spoil the sentiment for some of these oil companies.
Because a lot of changes are happening in China, some investors are buying textile stocks and electronic assemblers like Dixon and Amber. Some are also buying chemical stocks. What is your favourite China trade?
The entire theme would be around names like specialty chemicals and textiles and maybe some other small categories which are going to benefit because of either a) the pricing being higher because of the disruptions in China and b) because of the curtailment of exports by China. There might be some volume advantage to the Indian companies and within this particular theme, we definitely like textiles though in the overall scheme of things, at an aggregate level, textiles is not a big segment.
But exporters like Himatsingka, Welspun, Vardhman Textiles will definitely see some benefit of higher market share and higher volume. We have to also bear in mind that the raw material prices too have gone up. For example, in the case of textiles, cotton prices have shot up but nevertheless, these two names are looking good and within specialty chemicals, we have been liking names like
which have gone up quite a lot even in the last few days.
These companies are so well integrated — right from the finished products to raw material where the dependency on China is practically not there — and the pricing environment can be in for some more excitement in terms of upside. So, Deepak Nitrite, Clean Science and even SRF are the companies which would stand to benefit from the current narrative around China.
As a house which end of the textile space are you betting on — spinners, textile machinery manufacturers or pure textile apparel retailers like Aditya Birla Fashion or Trent?
Two textile exporters — Himatsingka and Welspun — are the names that we prefer and apart from that, from a retail standpoint, the way the open up theme is catching up, Aditya Birla Fashion is something that we like but that is not a textile play. It is more of a retail play.
The way US natural gas futures are jumping, it is already at a 12-year high. That augers well for ONGC and Oil India. After the recent spurt in ONGC, would you be willing to add more to ONGC or buy afresh?
The sentiment for stocks like ONGC and Oil India continue to be positive. What the market is sensing is that probably the oil prices will remain elevated for an extended period of time as we do not see any indications from OPEC to boost production and as we are entering the winter season, there might be some further inventory built up.
That is playing out for ONGC and Oil India. We are looking at quarterly numbers. For average realisation for the quarter, the market would start factoring in some incremental positive upgrades given the current high prices. So from a tactical or short term perspective, given the momentum in the pricing, there would definitely be interest in these names. But if one has a medium to long term perspective, given the commodity nature of these businesses, one may want to avoid entering the market at current levels. But yes from a momentum perspective, these companies still continue to look quite strong.