Sandip Sabharwal on what’s driving pharma and why Delta stock is unbuyable

economictimes.indiatimes.com:

Sandip Sabharwal, asksandipsabharwal.com, says in the case of Delta, “if the government is hell-bent on killing the industry, then it makes no sense for us to hold that stock. That is my logic. With this kind of taxation that has been proposed, how can these businesses sustain? It is impossible.

This taxation regime defies logic and makes the stock unbuyable.”What is happening in pharma?Several things are happening. First, the move starts when a sector becomes under-owned. So, the sector became very under-owned and to that extent, that contributed to the move as some positives started building up.

On the generic side, we are seeing price upticks globally. Domestic market is doing decently and input cost pressures are coming off. So, there is a combination of factors working in pharma.

Valuations came down to levels which were at multi-year lows. That is all contributing. Now, people have to make their choice.

I do not buy stocks like Glenmark or Aurobindo, which have balance sheet and previous corporate governance issues, which people tend to ignore in the short run. But we own Sun Pharma and Lupin, which have done well for us.What about the entire auto pack? Of course, it was in the news last week and is expected to be in news this week as well.In the near term, the results become more important rather than the monthly data because July saw huge rainfall all over India. How that impacts demand in the short run is something which is unpredictable.

So, results will be important whether these companies also show the kind of margin improvement many of the two wheelers etc. have shown and the kind of outcome they gave. From M&M’s perspective, it is important to hear what their logic is for buying into RBL etc.