This is a market to buy, bet on these 4 pockets: Chakri Lokapriya

As the consumers’ ability to spend in various fronts increases, the weightage of consumer stocks will increase in the indices, says Chakri Lokapriya, CIO & MD, TCG AMC.

Where are you at in terms of pickings in bank stocks? Are you looking at some of the beneficiaries of the consolidation and privatisation that we are going to see in the space now? What about some of the smaller names in the banking pack?
There are a number of pockets that will manifest for various reasons. One is the low priced PSU banks like Canara Bank, Union Bank. These banks are still trading at very low valuations, their GNPAs are coming down, their provisions are improving, and with the capital infusion that is around the corner, their balance sheets will look stronger. Whenever the bad bank ARC happens, it will be a very significant positive, which means the outlook for these smaller sized banks like Canara Bank is very strong.

On the other hand, may be 15-20% of the credit flows through PSU banks or various government related projects. Wherever the money is flowing, the taxes are there. A couple of years ago, there was some amount of withdrawal from some of the PSU entities. Things like that will start returning. It is an incremental positive but not a huge, huge positive because it is largely a distribution of the same pie. But given that the overall credit is going to pick up, companies like RBL Bank which is still trading at only about one time book, down from three times book earlier, are going to see a significant upside. Finally, housing companies like Repco which are trading at 0.6-0.7 times book but have really decent financials, will also benefit.

With the inclusion of Tata Consumer, now there are six-seven consumer companies on the index. What do you make of that and the kind of weightage they are given?
Nifty historically has always underrepresented the consumer stocks. It was about three or four companies and now Tata Consumer has also entered the index. In spite of that, companies like ITC have a very big weight and a number of companies like Jubilant, PVR -- which are all consumer facing companies are still not represented in the Nifty.

It is a welcome thing that Tata Consumer is now a part of the index. It is a different matter that it is an expensive stock but on the other hand, greater India is still a 75% plus services economy. As the consumers’ ability to spend in various fronts increases, the weightage of consumer stocks will increase. A case in point is the S&P 500 in the US. Two-thirds of the weight is consumer. We have a long long way to go from here to there.

It seems that this is a buy on decline market and the bull run is pretty much intact. What would you be tempted to buy afresh?
Clearly it is a market to buy and there would be all the cyclically facing names, banks and financial services; second is metals because the global rally in metal prices will help companies like Hindalco, Tata Steel, Jindal Steel and Power. Third, the domestic facing infra companies like Sadbhav Engineering, Nagarjuna Construction, PNC companies will benefit from the government’s push. Finally, the PLI companies like DLink and various other companies which will benefit from a quick move to PLI are the types of sectors and companies I am focussed on.

We have been tracking this move on crude and given that it is now inching higher at near one year highs what are you making of it and the resulting impact on specific names as well in light of that?
Crude is reflecting the rebound and global economies. Last year, following pandemic lockdowns, oil had crashed to below $30 and now with the world opening up, it is back to about the $60-$70 range which is normally a very sustainable number for India’s economy. In order to control inflation, it is possible to reduce the taxes which are making for half of the petrol and diesel prices and which have an impact on inflation. But in an economy which is rebounding at the current petrol and diesel prices, it is unlikely to make a significant dent on demand especially when it is coming back strong.

Where are you finding the potential for multifold returns if we look at the broader markets?
In the broader market as well as the front line, look at the auto ancillary companies -- be it tyre companies or some of the other ancillary companies. Second is the metal companies and front line companies Tata Steel, Hindalco, Jindal Steel and Power will do very well. Thirdly and most importantly, the financials.

With the credit uptick across banks -- private and public sector -- and NBFCs, financials will be the biggest beneficiaries. They have cleaned up their books in the last couple of years. As the economy improves, the valuations will improve for SBI, the smaller counterparts or even for the bigger banks.