Look at Nestle from 3-year perspective; expect to see strong auto cycle: Marcellus' Pramod Gubbi

“We own Maruti Suzuki India among four-wheelers and Eicher Motors amongst two-wheelers and Escorts in the farm equipment play. We have benefited from that. Similarly, we have had exposure to auto ancillaries. So it is in some ways autos, auto ancillary along with financials are primary play on the economic recovery,” he said.

“Building materials, which is paints - and we do own Pidilite among the adhesives - have a cyclical component to it with exposure to real estate and so on. We are perhaps at the beginning of pretty strong auto cycle and we have had our own exposure to them,” he added.

“We at Marcellus are prepared for adversities. As long as you are invested in fundamentally strong companies, you can expose yourself to a potential economic recovery and at the same time can protect your downside should such adversities arise,” he said.

In terms of paint companies, he said, “Paint still has a substantial portion of unorganized sector which has faced extreme difficulties even before COVID-19 when India as an economy started formalizing under goods and services tax (GST) and so on. As long as the fundamentals are representing the stock price appreciation, I don’t think there is a case for any concerns on valuation front either.”

Speaking about COVID-19 second wave in India, he said, “I don’t think we have any more information to conclude one way or the other that there is a second wave. Assuming that we will be able to pass through this tough phase, we are nicely positioned for a recovery over the next three-five years in which case a lot of these economy facing stocks should do well.”

“All stocks in those economy facing sectors will do well. You still need to do your bit in terms of stock selection, find companies with clean managements, strong balancesheets and sustainable competitive advantages will remain the order of the day even those sectors and we advise investors to look at those aspects as well,” said Gubbi.

“We continue to remain happy holders in Alkyl Amines, Garware Technical Fibres. The only reason we will exit them is if any of the components of our investment thesis. Given how well the franchises have improved fundamentally, we are at a stage where we can say that the stock prices have significantly run up ahead of fundamentals. Intrinsic value are still significantly higher than their stock prices,” he said.