Pharmaceutical stocks: 5 stocks to bet on in the pharmaceutical and defense industry: Rahul Shah

“In IT, I would advise clients to reserve profits for the short term and perhaps look for opportunities later,” says Rahul ShahVP-Equity Advisory, Motilal Oswal Financial Services.

What do you think of the weakness of the computer pack? Is this short term pressure and an opportunity to buy for a long term investment or would you say there will be a better price opportunity?
IT stocks have done quite well for the past month or so and it looks like ahead of the results, investors would like to take advantage. In fact, we have profit reservations in all large-cap IT stocks. My view is that one should consider booking profits at these levels. However, the sector remains very positive. The earnings trajectory for the coming year should be very strong for IT companies.

But initially, there might be declining job numbers and, more importantly, in terms of coming management feedback in most IT companies. I would advise clients to reserve profits for the short term and perhaps look for opportunities later.

What do you think of the defense pack? Over the past couple of weeks we have seen a big rebound in defense stocks like Bharat Dynamics, Hindustan Aeronautics. A CLSA note talks about how we might envision a complete turnaround in the sector. Is now a good time to consider it from a long-term investment perspective?
Most defense companies belong to the PSU pack and we are seeing repricing in most PSU packs. So one of the reasons for the rebound is also that. If I look at companies like BEL, BDL, HAL, all of them have been on fire for the past month or so and obviously the influx of orders has supported them.

They were available at a very reasonable valuation and defense spending boded well for most of the PSU pack. I think BEL remains the first choice followed by HAL and BDL. All three stick in my mind, but in the large cap space, BEL has more potential from current levels and is followed by HAL and BDL.

In addition to purely playful real estate names, do you like everything related to infrastructure and construction?
The focus is on real estate play rather than pure infra play. Below we are very selective. Our top pick is L&T, followed by a few mid caps like GR Infra etc. But real estate stocks have done quite well and they have performed well over the past couple of years. There are still more advantages in a few real estate names. The first choice here is Macrotech Developers. Another stock worth considering is Godrej Properties, which is followed by companies like Sobha and Prestige. The whole pack looks very promising from here.

Tobacco companies are holding up very well. ITC is not a pure tobacco company, but more than half of its revenue comes from the cigarette business. Godfrey Philips is the other action that, after a hiatus of nearly seven to eight years, has finally begun its rise. What do you do with this space?
The whole cigarette set as a whole did pretty well. ITC, after a long period of consolidation, started to rise. I would bet on ITC in the whole pack.

Where do you find value within the pharmaceutical industry? Not just large-cap companies, but even mid-cap pharmaceutical companies?
I have been focusing on large cap games for some time. Among them, Sun Pharma remains the first choice, followed by Divi. If we look at the pharmaceutical update that was released this month, we see that Sun Pharma has done quite well. Thus, Sun Pharma is expected to outperform layoffs of all companies. In the short term, the stock has underperformed over the past three years.

I think there can be a lot of upside and Sun Pharma might be one of the best performing stocks, followed by Divi’s. I think these two ideas remain the best ideas about the pharmaceutical industry.

(Disclaimer: The recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)