Anand Shah on why he remains positive on metal pack, manufacturing
You Might Also Like:
Sectoral themes or bottom-up stories? Anand Shah explains the state of the market
You Might Also Like:
Mihir Vora on where to look for opportunities in the broader market
(You can now subscribe to our
(You can now subscribe to our ETMarkets WhatsApp channel
CIO- PMS & AIF Investments,says global ferrous metal profitability remains muted due to strong Chinese exports, pressuring steel company earnings worldwide. Despite this, there's optimism for margin recovery in select chemicals and metals sectors, driven by attractive valuations and potential earnings growth. While positive on manufacturing, particularly defense and railways, valuations are becoming less appealing.Indeed, profitability in general, especially in the ferrous metals, is still fairly muted globally. We are seeing very strong exports coming out of China which is putting a lot of pressure not only on the profitability of the Chinese steel companies but even the profitability for steel companies globally is under pressure as Chinese demand remains muted. But the production and exports continue to remain strong.The whole premise on being overweight on select cyclical sectors is that we believe in pockets of chemicals and pockets of metals, we will see bottoming out of the margin sooner or later and that is when a little bit of pricing power will come back along with a little bit of margin growth along with reasonable topline growth. Valuations remain fairly attractive in these segments of the market relative to the overall market PE multiples. So, a combination of expected recovery in earnings and the reasonable valuations makes us more positive on this sector versus others.We continue to be very bottom up in pharma because there are very different drivers of earnings and growth for each company. The outlook for US generics notwithstanding, the tariff related uncertainty remains little positive. We had a lot of pricing pressure which has eased and that continues to remain fairly favourable for the generic companies in absence of a tariff issue. So, we still remain on the sidelines. We are still watching out to see what is happening on the tariff front and how the US generics is playing out, which is a large component of profitability for most of the pharma companies.We have been positive on manufacturing for quite a while now. We saw the bottoming out of the manufacturing margins in 2019, 2020 phase and since then there has been a sharp recovery in profitability but more importantly, pockets of markets like defence and others have actually done extremely well and to that extent the valuations do not remain that attractive today in many of those pockets.So, within manufacturing and again across the market, you will have to be more bottom up. Broadly the market is fairly priced and to that extent, no outsized returns can be expected from the broader market and from here on, for both for creating alpha on the way up as well as protecting the capital in the event of a sharp correction in the market being more bottom up, being more focused on the earnings growth rate at a reasonable price and reasonable valuations are both very important. We continue to focus on those areas, identifying sectors and companies where earnings growth relative to the valuations are attractive today.One of the very big themes for us has been consolidation versus fragmentation. In our bottom-up stock picking, it is very important to see which sectors or which segments of the market where the number of players are reducing. There is a consolidation and to that extent, the pricing power is moving back to the manufacturer or to the service provider and that is where I have spoken about airlines and telecom sector in general before.In that context, the consumer space in general and paints in particular, have had a very high profitability for a very long period of time. We had a fairly stable competitive intensity where four players dominated that market. Since then, given that the valuations were reasonably high for this sector, and the market was ready to value them in greater multiples to their earnings, it has attracted a lot of competition.We have seen an influx of quite a few players in that segment of the market, particularly in paints over the last few years and that has brought down the growth not only for individual companies, but also the margins. We are watching that space and seeing if there is an end of competition and we will again start seeing consolidation and moving up. That should help the sector and the companies in those sectors.Cement has been consolidating over the last 20 years and at region level it is further consolidated. Having said that, what we all like in the cement sector is that the profits are not very high. The margins relative to historically what they made is not significantly higher and to that extent we believe the cement has room for prices to move up or margins to move up given that the inflation has not been very high in that segment of the market for a very long period of time.Overall, in one pocket, southern India, the margins were far lower than the average and that is where we are again seeing some bit of uptick. Otherwise, across India, we expect consolidation should drive slowly and steadily the profitability to higher levels as demand picks up. Demand will be the key, spending on real estate, spending on housing, spending on infrastructure. Without that, we will not get sustainable improvement in pricing and profitability that changes month on month. The reason is that demand is not as strong as one would want for a sustainable growth and improvement in pricing and the margins for the sector.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Time of India
16 minutes ago
- Time of India
US Democrats, Republicans plan bills to pressure China as Trump pushes trade
US senators are set to introduce bills against China. The bills focus on treatment of minorities, dissidents, and Taiwan. This move highlights security and human rights issues. It comes as President Trump prioritizes trade with Beijing. The bills have bipartisan support. China opposes these bills, calling them interference. The US aims to balance trade with security concerns. Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads US senators from both major parties plan to introduce bills this week targeting China over its treatment of minority groups, dissidents and Taiwan, emphasizing security and human rights as President Donald Trump focuses on trade with three bills, seen by Reuters ahead of their introduction, have Democratic and Republican sponsors, a departure from the fierce partisanship dividing Chinese Foreign Ministry on Tuesday expressed opposition to the bills, calling them "a gross interference in China's internal affairs" and demanded a halt to the "erroneous bills" advancement and push to reach economic agreements between the world's two biggest economies has strong support in the U.S. Congress, especially from his fellow Republicans, but has prompted some China hawks to worry that the U.S. government is de-emphasizing security issues."It does appear that President Trump is keen to negotiate some kind of deal with China, and gaps are opening between his approach to China and the approaches of some members of his team, as well as with Congress, which overall has been quite hawkish on China," said Bonnie Glaser, an Asia expert at the German Marshall Fund of the United desire for a hard line on China is one of the few truly bipartisan sentiments in the perennially divided Congress, even as many lawmakers support Trump's efforts to rebalance the bilateral trade relationship."The United States cannot afford to be weak in the face of the People's Republic of China and its aggression around the world," said Democrat Jeff Merkley of Oregon, a lead sponsor of all three bills."No matter who is in the White House, America's values of freedom and human rights must remain at the heart of a clear and principled vision that guides our leadership on the global stage," Merkley said in a administration officials have said that Trump remains fully committed to Asia-Pacific security issues as he pursues his trade agenda and a good personal relationship with Chinese President Xi for comment on Monday, White House Deputy Press Secretary Anna Kelly said administration officials do not get ahead of the president on pending legislation."President Trump has publicly discussed his desire for a constructive relationship with China. He is focused on advancing American interests, such as leveling the playing field for American industries and getting China to stop the flow of fentanyl into our country," she said via bill, co-sponsored by Republican John Cornyn of Texas, would deny entry into the United States of current or former Chinese government officials who were deemed to have engaged in the forced repatriation of members of China's Uyghur rights groups accuse China of widespread abuses of Uyghurs, a mainly Muslim ethnic minority numbering about 10 million in its northwestern region of Xinjiang. Beijing denies any bill, co-sponsored by Republican John Curtis of Utah, aims to help Taiwan as the island faces increasing pressure from China. It would support countries in Latin America and the Caribbean that maintain official diplomatic relations with Taiwan and would take other steps to deepen coordination with claims the democratically governed island as its own and has never renounced the use of force to bring Taiwan under its control. Beijing has stepped up military and political pressure against the island in recent years.A third bill, co-sponsored by Republican Dan Sullivan of Alaska, seeks to combat "transnational repression" - efforts by any foreign government to reach beyond its own borders to intimidate, harass or harm dissidents, journalists or foreign ministry, in a response to the bills, said on Tuesday that China has never engaged in so-called "transnational repression" and rejected U.S. accusations regarding Taiwan and Xinjiang."The related accusations are entirely fabricated and are malicious slander," the ministry said. It urged U.S. politicians to abide by the one-China principle and stop using human rights as a pretext to smear and attack Trump's August 12 deadline, top U.S. and Chinese economic officials are meeting in Stockholm on Monday to try to tackle their longstanding disputes, hoping to extend a truce by three months and keep sharply higher tariffs at "cares about opening foreign markets to American trade, and that's what he's always cared about. And that is going to run counter to a lot of national security imperatives," said Michael Sobolik, who specializes in U.S.-China relations at the Hudson and some of Trump's fellow Republicans raised concerns about the announcement this month that Nvidia will resume sales of its H20 artificial intelligence chips to China, days after its CEO met with Trump. This reversed an AI restriction imposed in April that was designed to keep the most advanced AI chips out of Chinese hands.
Indian Express
16 minutes ago
- Indian Express
Apple is shutting a store in China, its first closure in the country
Apple will close a store in northeastern China in August, the first time it has shuttered one of its retail locations since it opened its first outlet in the country in 2008. The company said Monday that it would close its store in Dalian City's Parkland Mall on Aug. 9. On social media, locals have described the mall as struggling, noting that other brands like Michael Kors and Armani had closed their stores there. 'Given the departure of several retailers at the Parkland Mall, we have made the decision to close our store,' said Brian Bumbery, an Apple spokesperson. 'We love serving the Dalian community, and all of our valued team members will have the opportunity to continue their roles with Apple.' The closure is the latest sign of how China's economy continues to be challenged by tepid consumer spending. The government has poured large sums into programs designed to spur purchases of smartphones, washing machines and electric vehicles. The trade-in programs have gotten people to spend more but economists say the impact on consumption could be short-lived. The pullback also reflects Apple's ongoing business troubles in China, which is its second-largest market. Apple has reported declining sales in China for six quarters. Last year, it reported total revenue in the country of $66.95 billion, nearly 10% less than its peak of $74.2 billion in 2022. Chinese rivals like Huawei, Xiaomi and Vivo have eroded Apple's share of the world's largest smartphone market. Last year, Apple's share of sales of smartphones in China fell to 15.5% from 17.9% a year earlier, according to Counterpoint Research, a tech research firm. Apple will continue to operate its other store in Dalian at another shopping mall, Olympia 66. The iPhone maker plans to open a new store in the southern Chinese city of Shenzhen this month. With that opening, the company expects to finish 2025 with the same number of stores, 58, as it had at the beginning of the year, even after the Parkland Mall closure.
Time of India
28 minutes ago
- Time of India
Nvidia places huge order of its most powerful AI chip in China but why it may not meet demands
Nvidia has reportedly placed a significant order for H20 chipsets with contract manufacturer Taiwan Semiconductor Manufacturing Company (TSMC) last week. News agency Reuters report that this move signals a change in strategy, citing sources as saying that strong Chinese demand has prompted Nvidia to increase production rather than solely rely on its existing stockpile. The report said that Nvidia has ordered TSMC to manufacture 300,000 H20 chips that will add to the US chipmaker's current inventory of 600,000 to 700,000 H20 chips. For context, US research firm SemiAnalysis estimates Nvidia sold approximately 1 million H20 chips in 2024. Nvidia has also reportedly requested that Chinese companies interested in purchasing the H20 chips submit new documentation, including client order volume forecasts. Why Nvidia's latest H20 AI chip order for China is important Firstly, this order comes after the Trump administration reversed an effective April ban earlier this month, allowing Nvidia to resume sales of its H20 graphics processing units (GPUs) to China. The initial ban was implemented to restrict advanced AI chip access to Chinese entities, citing national security concerns. by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like Pierce Brosnan's Wife Lost 120 Pounds - This Is Her Now Undo Crucially, Nvidia requires export licenses from the US government to ship these H20 chips. While the company stated in mid-July it had received assurances from authorities regarding expedited approvals, the US Commerce Department has yet to officially approve these licenses, according to multiple sources cited by Reuters. Nvidia specifically developed the H20 for the Chinese market following broader US export restrictions imposed on its more powerful AI chipsets like the H100 and the new Blackwell series, which are sold in other global markets. Nvidia CEO Jensen Huang had previously stated this month during a visit to Beijing that the decision to restart H20 production would hinge on order volumes, noting that reactivating the supply chain would take about nine months. Prior to the April ban, major Chinese tech firms including Tencent, ByteDance, and Alibaba significantly increased their H20 orders, deploying them for cost-effective AI models like DeepSeek's, as well as their own. AI Masterclass for Students. Upskill Young Ones Today!– Join Now
