Zomato, Paytm, PB Fintech: Is it time to re-enter these high-beta stocks? Dipan Mehta answers

"There are a few select midcap IT companies where there is still a lot of growth potential, but they are expensive and you need to buy them at correction but think that correction also is over," says Dipan Mehta, Director, Elixir Equities.


Much like Reliance, would you say steer clear from IT as well? I mean, even though the index has fallen about 16% year to date alone, but the NSE IT valuations on a one-year forward basis at 24 times is still pretty expensive and this along with US uncertainty.
Dipan Mehta: I tend to agree with you and again, in the same situation like Reliance, if you are benchmarking the Nifty or the Sensex, then because of high weightage of TCS, Infosys, you need to have them in your portfolio, you can be underweight them.
But from retail investors perspective, you can avoid every single largecap IT stock. And these companies have really just not shown growth for the past several years or so. Despite rupee depreciation, TCS, Infy have got like a 10% type of revenue growth for the last 10 years or so.

There are a few select midcap IT companies where there is still a lot of growth potential, but they are expensive and you need to buy them at correction but think that correction also is over.

So, we need to be very selective when it comes to software companies and focus only on the companies which have demonstrated that they can grow at the mid-teens and not at that typical 8-10% type of growth rate because companies growing at 8-10% top line will never give superior returns over the longer period.

Which midcap IT companies were you talking about?
Dipan Mehta: So, the list is obvious if you do a quick screener, likes of say Persistent Systems, Newgen, Oracle, to an extent KPIT, but I am getting a bit more cautious on KPIT and then there is Coforge as well. So, these are the companies which have been able to grow far better than the industry averages or their peer group, but they are expensive also, rightly so, but that is where investors if they want to invest in software companies, that is where they should be looking at.


Help us with your take on some of the favourites of 2024, case in point being Zomato, Paytm, as well as PB Fintech because just yesterday we have seen a move of 7% to 8% on some of these counters. And yes, they were favourites of 2024 and those were the counters having high PE, high growth prospects, but yes, with the market fall, they did participate in the sell-off that we have witnessed. But do we believe now is the time to maybe once again look into some of these counters?
Dipan Mehta: So, these are high beta stocks. So, when the market falls, they fall much faster and when the market rises, they tend to outperform also spectacularly. Investors should have exposure to these new generation companies, these platform companies. And if you do not have, then this is a good time to get into these companies, disclosure we and our clients are invested. PB Fintech in particular, after the clarification came about their healthcare strategy, some amount of uncertainty has been addressed over there and it is a good, interesting business model with great scaling opportunities and I would say reasonable valuations.

Actually all three companies, they have got great growth potential and if you hold them for a long period of time, three years, five years, ten years or so, they can deliver superior returns.

But you have to be ready for a lot of volatility in their stock prices and their earnings and there could be even corporate actions which may not be completely aligned with or may appear to be a bit of earnings dilutive.



There is merit perhaps in not just HPCL, BPCL, some would say that one thing is evident that the US administration will do whatever it takes to keep crude down because it is perhaps important for them to keep crude down to manage their expenses.
Dipan Mehta: So, if you want to play the investment theme of lower crude oil prices, the best way is to buy the oil marketing companies and they are getting a lot of investor interest and a lot of expansion plans going on stream for all the oil marketing companies, the investments which they have made, a lot of them are reaching commissioning stage. And lastly, valuations are really attractive over there and it is a neglected sector, so you always have this kind of thought process that neglected sectors may do well in the next phase of a bull market.

So, from that point of view, also HP, BP, IOC, their scope for earnings to improve because of lower marketing losses and also the fact that PE multiples can get upwards as there is more certainty around their profitability.

So, I would say that from investor's perspective if you want to actually even lower the overall PE of your portfolio, these stocks are good to invest for the next 6-12 months, maybe a year or so, and then let us wait and see how oil prices actually perform over the next few quarters or so.



I will take my chances with this one. Tata Motors, the dependence on JLR, everyone thought that is going to be a curse, then it became a boon, now it is become a problem. But at current level, if somebody is buying Tata Motors, are you buying good company at a decent price?
Dipan Mehta: See, it is a difficult question to answer because right now Tata Motors could be a value trap as well. No doubt its valuations are very attractive, but the way the uncertainty is there around JLR, I would just like to avoid Tata Motors. Our bias is more towards other auto companies, maybe Maruti, M&M, Eicher Motors, and there is only so much exposure you can take to automobile companies and there are a whole host of auto ancillaries also which have corrected pretty nicely and they are also pretty interesting because most of them are not impacted by the shift from ICE to EV.

So, I would say that given so many choices, I would go with other auto, auto ancillary companies rather than Tata Motors. But look Tata Motors does have a way of surprising investors on the upside and the downside, so one cannot really say, but all I can say that fundamentally, it is a very difficult company to track and get a handle on.


More and more reconciliation in the market seems to be coming that if tariff on pharma is imposed, it is going to hurt the US economy more than it will affect Indian pharma companies. While it may help the US trade deficit, it could increase healthcare costs, which is actually a bigger burden. So, should one buy into this entire pharma suspense or tariff suspense pharma stories?
Dipan Mehta: No, I do not think so and the reason for that is that if there are levies on import of pharmaceutical formulation, it is certainly going to affect the profitability of these companies. It is easy for the management to assume that they will get passed on, but does not really work like that. And I would just be a bit cautious when it comes to pharma.

Also, we are seeing mild slowdown in the domestic market sales also, so that also a bit of a concern. And base effect also is coming into play for a whole host of pharma companies. So, I would be a bit cautious.

But once we have clarity on Trump tariffs and once we know for sure that what exactly is the import duty he wants to put on pharmaceuticals, then there could be interesting bets over there. But within the pharma space also if you want to be overweight, I would go for the CDMO players. They are to an extent more protected than pure generic players, companies like say Divi’s Laboratories, Suven Life Sciences, Piramal is there, and there is this OneSource, the new listing, which has been split out from Strides. There is Blue Jet, I think if I got the name correct.

So, these are companies which I would say I would focus on and increase our coverage over there because these businesses have great potential considering all the various industry dynamics taking place over here.



Where are PSU stocks in general headed? I mean, there was this entire phase where anything which had PSU association directly or indirectly, those stocks were getting re-rated. Is it time to say goodbye to PSUs and only select PSUs now will go higher?
Dipan Mehta: No, I do not agree with that. And in fact, when we are so positive on banks, NBFCs, preference is for PSU banks, their growth rates, their NPA levels, their technology platforms, service levels are fast catching up and kind of coming closer and closer to private sector banks, so that is certainly one sector that we would like to be positive on.

And then there are the PSU engineering companies which are in the defence space and non-defence space. They are sitting on very good order book positions, so there is good earning visibility over there as well. Valuations also are quite reasonable. So, I do not think that the PSU rally on a longer timeframe, like 5-10 year timeframe is over and done with. You may see a good outperformance over there as well.