Chakri Lokapriya, CIO & MD, TCG AMC, says “premiumization is basically wherever there is a higher ticket sale and something which lasts in value. For instance, QSR is a consumption play, but something which is extinguished and there the margins pressure is actually very evident. What is happening is there is a spend happening on items which last a long time, like jewellery, vehicles. Also, some kind of uptrend is seen in Nykaa and others come in which are consumables. ”
A stellar cricket match was played yesterday. What is your outlook then in light of the cricket analogy as to what could likely hit a six or hit it out of the park when it comes to the stock markets in terms of an individual sector or even a stock?
I just hope that the power sector continues to bat like how the Indian team has been doing so far and it is probably going to go that way. If you look at the number of companies joining that list, for example, another PSU, Neyveli Lignite Corporation, has very large expansion plans in both the renewable and the non-renewable space and thermal and in mining. And now it is trading at about like one time book value. It has a phenomenal amount of growth ahead of it and therefore valuations inside and this story can be repeated across a number of power names.
What about some of the consumption plays?Alcobev for instance or even textile retail because the numbers from these companies have been quite strong? Nilesh from Envision is quite positive about the entire Alcobev space and UK FT, though it keeps getting delayed, could be one of the kickers as well and another FT is lined up as well.
Interesting patterns. In the luxury and the high end, they are clearly consuming just about every single pocket. So, that is pretty strong. On the other hand, as you are coming down the chain, durable consumption is holding out very well. What I call durable consumption is, for instance, Titan. Now, this is something which holds its value and therefore people are continuing to spend and buying two-wheelers. So that bit is holding exceptionally well.
But if you look at the QSR and the retail space, retail apparel only except for maybe Trent and a couple of them, product differentiation is doing well. Otherwise, there is weakness and margin weakness.
What about the Tata Tech IPO? , Given that the price band is set at Rs 475 to 500 per share, what is it that you are advising investors to do?
It is in a very interesting space given that both its engineering outsourcing services to companies, as well as in its pure technology division, both of which are very relevant in today’s space. They help the manufacturing industry which is now going all digital and so from that perspective, it is clearly a very interesting space and therefore will get higher valuations. But as a company, I do not think we will be investing in it right now. But clearly it looks like a very strong company for the long term.
There is a brokerage note this morning which is betting big on some of the tech plays which help out with auto technology. Do you think the largecap IT space could be a contra bet? If the market were to move higher, would they participate too?
In largecap IT, some of those reports are now talking about a certain shift in focus now that the US inflation has come down. Therefore, there is an expectation that rate cuts will start sooner rather than later. Against that background, they expect a demand revival which is missing for the largecap IT. But I do not think that battle is over yet because as far as the US is concerned now. They have just shifted the pause from December to January.
So it is still a wait and watch because largecap IT valuations have not really corrected that much. They are just mirroring the slowdown and growth rates. I will still stay away from largecap IT.
In autos, there is a distinct demarcation in what the passenger vehicle makers are doing to what is happening with the farm segment and the CVs are in a different trajectory altogether?
In the auto sector, clearly passenger vehicles as well as two-wheelers have done very well. There has been some amount of revival in the farm sector. But that is more company specific. Companies like Escorts are doing very well and that is because not just farm, but farm-related equipment are also doing well. As far as two-wheelers are concerned, this is the part of the consumer durable spend that is holding up. That trend will continue to remain strong going into the next quarter.
The likes of Titan, United Spirits, Nykaa, Havells, all are a play on the luxury trend that is currently at play. There are many out there within the realty segment as well. How do you capture this premiumization trend?
The premiumization is basically wherever there is a higher ticket sale and something which lasts in value. I would like to spend a minute it with for instance, the QSR. It is a consumption play, but something which is extinguished and there the margins pressure is actually very evident. What is happening is there is a spend happening on items which last a long time, like jewellery, vehicles. Also, some kind of uptrend is seen in Nykaa and others come in which are consumables.
So the way to play it is through precisely those companies like some of the jewellery companies, whether it is Titan, Kalyan Jewellers, and through some of the automobile companies, be it TVS Motors, Tata Motors and maybe Sula. I think those are the ways to play consumption.
What is your view on TCS with respect to the Rs 17,000-crore buyback?
The buyback has fairly well articulated the price, if you are based on the acceptance ratio. So because of the buyback, will we see a significant uptick in the stock? It is unlikely. On the other hand, is the stock fairly valued? Yes. So I think it treads water at current levels.
What about the rural plays? Do you think they could make a meaningful comeback anytime soon? Although none of the readings seem to be indicating so as of now.
You are absolutely right. None of the readings are showing any marked improvement. There are these specific pockets like Escorts. Now, that is doing fairly well. Of course, M&M is only a part of the whole story of the rural bit. But outside of that, the traditional consumer staples that one would buy, those I would not for the simple reason that the valuations are still very high and do not reflect the incremental growth from the farm and the rural sector. I will still stick with urban plays and premium plays and as that is the way to invest in consumption, at least the way we are doing it.