Cement stocks along with customer discretionaries have attracted the consideration of international brokerage and study firm Credit Suisse as it appears to bank on beneficiaries of input expense normalisation. In a note co-authored by Neelkanth Mishra, Abhay Khaitan, and Prateek Singh, Credit Suisse stated that going forward, the normalisation of input charges would assist sectors such as paints and cement with pricing energy in their hands. “An extreme supply-chain bull-whip is likely driving chemicals too: inputs to adhesives, paints, cement, etc. As costs fall, firms with pricing power should benefit,” the report stated. After getting stayed overweight in metals for months, Credit Suisse lately trimmed weightage fo metal stocks, locating the danger-reward unfavourable and terming the commodity price tag surge, cyclical and not structural.
Paints and Cement to advantage
The note highlighted that chemical compounds that are made use of as raw components in sectors such as paints, adhesives, and cement are now priced at unseasonally higher levels owing to provide-chain inefficiencies. “As petrochemical price trends normalise and costs fall, firms with pricing power should benefit,” the report stated. Credit Suisse has added Asian Paints, to its portfolio to advantage from the trend.
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Further, the report adds that the cement sector would also advantage from reduce charges of such components. “We, therefore, go overweight on cement, adding UltraTech Cement despite the near-term concerns on adverse seasonality and a weak outlook for low income/rural discretionary consumption,” the report stated. UltraTech Cement is also anticipated to advantage from capacity expansion and reduction of fixed charges in the close to term. The sector presently trades at an 11% premium to the market place. Historically, the sector has traded at a 14-year typical premium of 25%.
Overweight on banks, rejig IT portfolio
In the monetary sector, Credit Suisse has retained its overweight rating on private banks and State Bank of India. “We believe they are the best plays on our expectation that medium-term economic growth would be better than consensus,” the report stated. The brokerage firm has ICICI Bank, Axis Bank, SBI, and HDFC Bank in its portfolio.
Seeing the resilience amongst Industrials for the duration of the second wave of covid-19 in India, analysts at Credit Suisse have retained their heavy overweight stance on the sector. Forward P/B of Industrials relative to the market place remains beneath historical averages even even though in absolute terms it is at 5-year highs. In the Information Technology space, Credit Suisse remains underweight. The brokerage firm has removed HCL Technologies from the portfolio, adjusting the weight by rising TCS.
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