Talking to ET Now, Chakri Lokapriya, CIO & MD, TCG AMC, says if there is some relaxation in RBI rules. One can expect a huge rerating of PSU banks and SBI in particular.
Edited excerpt:
You are bullish on Phillips Carbon. What do you believe is the big positive or differentiating factor for the company?
Phillips Carbon is the largest carbon black manufacturer in this country and also one of the largest in the world. Carbon black is in great demand around the world and pricing is very strong and Phillips Carbon is expanding into speciality carbon black which is a higher margin product. Current earnings in the quarter were also very good. The guidance continues to remain strong and the company will go far in excessive guidance and grow north of 25% earnings for each of the next two years.
The stock is trading at a very reasonable valuation. Since, carbon black is used across both consumer and industrial products, the demand outlook is very strong.
There has been a lot of divergence over IT. The currency tailwind is on their side but stark performances from a TCS on one hand, and an extremely unimpressive performance from HCL Technologies on the other. After HCL Tech results, you may have seen some correction in the entire IT sector. After TCS hit the $100-billion market cap, there was concern around valuations as well. How is IT to be approached now?
HCL Tech in particular corrected post its results and the stock is down nearly 10% from the build up to its earnings and it trades at about 12-13 times. From that perspective, the growth is still evident. The stock is trading about 12 times at a discount to TCS and Infosys and therefore HCL Tech as a stock will do well i.e. deliver about 15-20% for the next one year or so.
IT as pack, speciality or some of the engineering product companies like Tata Elxsi, LTTS, all are looking good, they trade at slightly higher valuation but growth is very evident. IT as a pack, both in the regular services as well as in the engineered product software companies will continue to do really well over the next year or so, because the growth– European markets and US markets are looking very strong.
What is the view on the overall auto space as a whole?
For once the auto pack — both rural and urban — are looking good. The monsoon is expected to be good and so companies like Mahindra & Mahindra will continue to do well. The CV cycle is picking up and when these cycles pick up they last a good couple of years.
Corporate earnings are still not too strong and from that perspective there are enough legs for CV sales to continue to improve over the next couple of years. Ashok Leyland is looking good and the auto ancillary companies which supply into these companies are also showing very strong earnings trends. We would be buyers at current levels.
What do you with now the crude sensitives? because Last week InterGlobe Aviation numbers came out and before that the president stepped down. Aviation was a casuality of high oil prices. The aberration came by in OMCs as well. Today Trump will take a decision on the Iran deal. Where do you think this entire situation is headed?
Oil is expected to trade within the $60-70 range according to experts and I think that range is fine for an Indian perspective and earnings would not really be hurt as long as oil stays there. That is the view which is emerging as far as the range of oil price goes.
We have been talking about the overall consumption theme as a whole. The kind of volume growth that they have generated so far — Jubilant Food Works, Godrej Consumer put out their numbers today. How are you looking at this space as a whole?
Consumer companies are coming off a low base of last year and also there is evidence of a pick up of same store sales growth not just year over year comparisons but also a sequential improvement. This indicates that the consumer is beginning to come out and spend. There is some sense of normalisation happening in the economy and so we would be focussed on consumer durables of which autos is one good space to look at.
Also NBFCs like Magma Fincorp, which is a financier of commercial vehicle sales are good to look at. They are all interconnected to commercial vehicles segment. So, consumer as a space extended is beginning to look good on the back of earnings recovery.
Do you think there is a case for rejig within the banking space to increase exposure in corporate banks from retail centric banks?
ICICI and Axis have shown that they have kitchen sinked most of their corporate loans and yes there are NPAs so you will see the same trend continuing even into the PSU banks which are the corporate focussed banks.
As SBI reports its earnings in the coming few days, I would expect to see a similar trend emerging where the numbers will not be good but there would be a good amount of NPA recognition. A lot of it hinges tomorrow or in the coming future of what RBI decides on how to deal with the power sector NPAs.
I hope better sense prevails and they accept the power lobby asking for a greater number of days, 365 days for NPA creation. Now, if there is some relaxation in RBI rules. I will expect to see a huge rerating of PSU banks and SBI in particular.
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