Is it time to buy the chemical stocks again? Chakri Lokapriya answers

“The chemical stocks are fundamentally looking very strong. Their earnings have been upgraded for FY2023-24 and clearly it is worth buying back these stocks,” says Chakri Lokapriya, CIO & MD, TCG AMC

Yesterday Escorts reacted to some very positive commentary in terms of their long-term targets and growth market share plans as well; Maruti had new car launches as well; where are you finding preference and comfort within the entire auto basket?
All front line auto companies still look good longer term, whether it is TVS Motors in two wheeler space, Hero MotoCorp or even Bajaj Auto which has not performed that well.

Now if we look at Escorts with Kubota coming in and with their plan to introduce a good number of products over the next five years, that will keep the new product pipeline very strong for Escorts. So they are moving away from just being in tractors to a range of products, expanding their revenue base. The stock, valuation wise, is still probably about 16-18 times depending upon how much they will gain.

Escorts is a new company in terms of from being a tractor only company it has newer products that are going to come in so that is another company worth watching even after the run up.

The most traded commodity in the world last night behaved like a smallcap stock?
Yes, absolutely. In fact,from the lockdown days of 2020 to now, oil actually went negative. Crude has become a highly politically sensitive commodity to trade. It is not just the fundamentals of oil and supply demand which impacts crude price anymore.

Second is even the October retail sales in the US a couple of days ago came in really good. The indications are that in a couple of days, the Black Friday Thanksgiving weekend is also going to see really good retail sales, which means there is no recession anywhere in sight in the US and that means the Fed will again raise rates by another 75 bps, which raises the fear that it will lead to recession and therefore lower oil prices.
It is this continued volatility of thought of whether we would have a recession or not combined with the political pressures of the Ukraine war that is making crude behave the way it is.

Outside the Nifty50, what looks interesting to you?
Bank of India has done really well. There is still sufficient room for the stock to do fundamentally well. It is still trading well under book. It has a good deposit franchise which is growing. It has cleaned up its book in the last couple of years and all those NPA problems are ironed out. Fundamentally, the stock over the next six to 12 months, will be north of Rs 100.

What is your outlook on some of these chemical companies?
The underlying demand continues to be very strong for a company like SRF or Navin Fluoride or even Tata Chemicals. All these stocks went ahead of expectations in terms of earnings expectations and therefore there was some amount of correction but the demand is fairly intact and that which means we will continue to have revenue positive surprises in the coming quarter and some of their packaging film divisions, packaging divisions etc did not do that well.

When I say they did not do well, they kind of met expectations but based on that, there was a correction. I think the stocks are fundamentally looking very strong. Their earnings have been upgraded for FY2023-24 and clearly it is worth buying back these stocks.