Chakri Lokapriya, CIO & MD, TCG AMC, says FIIs are selling partly because the rupee is still not stabilized. Looking at the dollar returns, that is one of the reasons for FIIs selling. Second, going forward as the interest rate turns in the US, once they start cutting the rates, at that point, the attractiveness of India and other emerging markets also improve. That is the cycle we need to wait for. We will know it tonight, at least a hint of the direction that the Fed is going.
There is so much to talk about budget, Reliance Industries, PB Fintech, Tata Motors overtaking Maruti. What would you like to start with?
Chakri Lokapriya: Tata Motors is very well-placed. It is, of course, a very inexpensive stock compared to, say, Maruti. It also has a wider canvas. It has international, domestic, commercial, passenger, electric vehicles and regular vehicles. Its stable is very strong, whether it’s electric vehicles or ICE. Now the good news is the company’s balance sheet is improving. It is coinciding with a time where the global situation will start improving. So, all these tailwinds will help the stock. I think Tata Motors is very well-placed at current levels.
What kind of swing impact will the Budget have?
Chakri Lokapriya: Two or three things. One is, of course, the continued thrust on capex. Second is rural. If they increase the farmer income from, say, Rs 6,000 to Rs 8,000. The third is the fiscal deficit. Now, capex is something which will help both urban as well as rural. So when that happens, as infrastructure spending brings in construction workers, et cetera, it increases rural spending. So consumer discretionary, which has been kind of lagging, can kind of pick up. On the other hand, industrials and manufacturing will continue to do well.
The Street is going to read into L&T’s numbers. While for the quarter gone by, they have fallen short of market expectations but the guidance is very strong, both on the revenue as well as the order inflow front.
Chakri Lokapriya: As you rightly pointed out, because order flow or guidance is strong, that is what the stock will react to. L&T is very well positioned for the continued infra-industrial, manufacturing spend and continue to benefit from all that spend. The order book is the clear metric. The revenue has grown 14-15%, a slight margin miss but valuations are largely okay.
But at this point in the cycle, the order book is the key. L&T continues to do very well, even from the current levels and it should be a good 20-25% up in a few months’ time.
How have you read into Dr. Reddy’s solid beat for the quarter gone by? What does this spell ahead? How does it stack up in terms of your pecking order within largecap pharma?
Chakri Lokapriya: Dr. Reddy has done well. It has shown an improvement both domestically outside India as well. The revenue is showing that in terms of reflecting the underlying demand for the products. The margins are stabilized and maybe there will be a small uptick in the coming quarters. But given all this has been reflected in this valuation, it is right up there. So, the stock works in line with the market and not an outperformance at the current levels.
It was not so much about the earnings for Bajaj Finance but the hint of a top level management change, which corrected the stock.
Chakri Lokapriya: Absolutely right. One was a potential management change. The second is the valuation itself. So, when the valuation is right up there amongst all the NBFCs. It is trading at a high level, comparatively to the other ones. And so, any hint of change, current management change will kind of, or any such news. So, from that perspective, Bajaj will reflect until there is greater clarity.
Why are FIIs selling? If the India appeal is so strong, why were they net sellers last year, and are net sellers in January? Why is that?
Chakri Lokapriya: It is partly because the rupee is still not stabilized. Looking at the dollar returns and that is one of the reasons for FIIs selling. Second, going forward as the interest rate turns in the US, once they start cutting the rates, at that point, the attractiveness of India and other emerging markets also improve. That is the cycle we need to wait for. We will know it on Wednesday, at least a hint of the direction that the Fed is going.
What has been your last recent purchase? Where have you added more stocks? Where are you shopping? And where are you taking some chips off the table?
Chakri Lokapriya: We are adding in the auto ancillary space. JK Tyre is still an inexpensive stock. It has repaired its balance sheet. The earnings growth is very visible. The top line is growing, the raw material moderation. Valuations are probably about nine, 10 times. In the coming cycle, it will benefit. So that is one in the midcap space.
In the largecap space, Tata Motors will continue to do well for the reasons we just discussed. And we have completely stayed away from consumer discretionary and from some of the frontline banks. We continue to maintain that stance because some of the NBFCs like Power Finance, REC will continue to do well as both valuations and outlook is on their side.
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