One segment that has been doing very well that is the EMS space because across the board the companies have come out with very strong set, look at the numbers for Dixon Technologies. It is a triple-digit growth number is what the company has reported and going ahead the management is confident of margin improvements especially in the mobile segment. Give us some sense how are you looking at this particular space, any particular take on Dixon Technologies if you can share with us and also on the valuations, the stock is trading anywhere between 70 to 80 times. Do you believe that it can still do well in such a market?Digant Haria: So, yes, you are right that this whole EMS space it has been the biggest manufacturing success story of India. We have been talking about make in India from 2019, but yes, this is one space which is right in our face which keeps on growing on a higher base year after year, quarter after quarter.
So, there is very little doubt that they will not do well even for the next two-three years. So, be it Dixon Tech or be it Kaynes or be it PG Electroplast, these companies have a long future because the government is giving them incentives in terms of PLI and see, what they are essentially doing is import substitution.
India is a very large electronics market and in fact, electronic products are the third largest thing that we import after oil and gold. So, this space will continue to do well, but questions on valuations will always bother everyone because they trade at 80, 90, 100 times.
Nothing in India which grows well is available for cheap. So, we have to make room for it in our portfolio. If we have some room in the portfolio where we can chase these high growth stocks, some of these definitely make a cut.
Because we are not very-very comfortable with very high valuations, we try to find some proxies, something like Ram Ratna Wires which will make those AC tubes, so if Dixon and PG they grow well in the AC segment, their ancillaries also do well, something like a Whirlpool which has started doing well. So, there are a lot of ways to play this sector, maybe Dixon is not in our comfort zone, but surely the company is doing great and will do well. Within the PSU basket, any stock that you like or rather any sector that you like at this point in time because of late they have not participated much in the rally that we have seen for the past two months barring select PSU financials and of late select counters like Coal India, ONGC they are inching up higher. So, do you find value in any of these pockets?Digant Haria: Yes, so the mining space is something which is of particular interest to us because see the world is rebuilding itself. If you look at Europe, Germany, US everybody is talking of re-industrialisation, maybe increasing their spending on defence and factories.
So, this whole aluminium, copper, or even iron and steel these are three metals where we think that anybody who can mine these metals or their raw materials that should do well. So, in India mining sector is largely controlled by the PSU. So, something like a Moil or an NMDC or even something like an Oil India or ONGC who drill out oil. Oil prices are also at its low and over next one year we can expect those oil prices to recover once these tariff tensions are away.
So, any of these stocks or a basket of them should do quite well. So, amongst PSUs, mining is our top pick. Obviously, defence has rallied a lot, otherwise defence would also have been a good pick, but just like Dixon, defence stocks are also out of the valuation comfort zone.
And then, if you look at the other PSU financials, especially something like a PFC, REC, Canara Bank PSU in that pack of Bank of Baroda, Canara Bank these PSU banks they are trading at good value, like maybe Bank of Baroda is at 0.8 times on FY27.
There is easy 20-25% upside, but that will need some bit of patience because as I said the next one or two quarters for the large banks and financials, they may not be great, but after that you will see three to four quarters of good recovery. So, mining is our number one preference and maybe the beaten down PSU financials, especially something like a Canara or a Bank of Baroda those stocks are where we find value and improvement after say one or two quarters.
Other than PSUs, where is it that you have any valuation comfort right now, any sectors or pockets.Digant Haria: So, in this not NBFC, but let us say small finance banks, the ones which are lending at a high yield, something like an Equitas or an Ujjivan or even new listings like Northern Arc, these companies have suffered because the interest rates were very high, the microfinance sector was going through pain and the regulator was also behind their back in terms of tightening the regulations.
Now, if you look at next 12 months, all these three factors will come in their favour. What was against them will actually come in their favour. So, these entire high yield lending pack in private financials that can really do well, so that fits our theme of beaten down financial stocks.
Then, even beaten down consumer names, something like say a Whirlpool or a Heritage in the dairy space or a Flair Writing Products. So, this entire consumer space is a very big space. So, beaten down consumer stocks which have done nothing for three-four years, that is where we are focusing on and we are finding enough ideas. It is just that we are waiting for some growth.
Something even like a Kajaria or a Cera or Sheela Foam all these consumer names they have done nothing for three-four years, so any recovery which comes after the monsoon and these stocks should reward their investors.
