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    Avoid cos with pricing control or loan waivers: Chakri Lokapriya

    Synopsis

    DRL, Glenmark, Syngene or Pfizer have a fairly good growth profile over the next few years.

    Chakri-Lokpriya-1200ETMarkets.com
    There is a global reflation trade which will pull up pharmaceuticals, IT and metals -- all cyclical companies, says the CIO & MD, TCG AMC.

    The delivery volumes on most of these and even the large caps is very low. For instance, irrespective of the fundamentals being intact and the kind of massive recovery that we have seen in Bajaj Finance stock from March lows, the delivery volumes were just about 8%. Something similar is happening in some of the metal names as well. There is a big disconnect between price action and delivery or even traded volumes.
    All those points are right. Both the FII as well as the domestic institutional investors volumes are low. Sitting at home, trying to make some money on the market is probably one of the causes of the spikes that we have seen. By nature, the retail customer is a slightly higher level of trading component. On one hand, there is a global recovery because trillions of dollars have gone in to revive various sectors.

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    For example, the UK has promised billions of dollars in infrastructure spend. That would mean the recovery of metal names. If you look at company specific actions like Jindal Steel & Power, that company has not only reduced debt, it continues to do so and it also very smartly focussed on export markets versus domestic markets during the lockdown. This has helped them report or to report fairly good numbers.

    That company has gone up about 50-60% but it is still a fairly inexpensive stock at about five times. There are lots of such opportunities -- be it pharma or agri chem or metals - -and that trend will continue to support the overall market.

    In an environment like this what is it that you are completely avoiding that you believe is linked very highly to risk?
    We are looking at two things; one is the recovery trade given that the markets have cracked and pulled down many companies far below their intrinsic value. On the other hand, there is a global reflation trade which will pull up pharmaceuticals, IT and metals -- all cyclical companies. IT not so much, but they will grow. So what we would avoid is where there is a huge amount of regulatory involvement such as PSU banks or power companies. We will stay away from companies where there is a lot of pricing control or loan waivers.

    Where is it that you stand when it comes to the IT basket? How have you read into TCS’s quarterly numbers, the management commentary and the impact that we saw on account of the lockdown?
    Looking back at what TCS just said, it seems that the market for IT services will continue to improve as these companies go through the rest of this year. Now that will have a positive rub off effect on Infosys, on HCL Technologies, on the other companies which have not reported because the trends are fairly evident and which are some of the obvious sectors like hospitality etc.

    They are going to take a longer time to recover. On the other hand, if we take BFSI or retail and you take India which is a very small miniscule portion of the IT companies revenues, as a case in point automobile companies are using technologies to try to sell their cars and bikes.

    This is far more advanced in the western markets where 99% of revenue for TCS, Infosys and HCL Tech come from and the valuations are really not expensive because at 23-24 times, TCS is on a weak global earnings wicket. You will see earnings recovery and therefore the multiples will start looking more attractive. So in IT, Infosys, HCL Tech are likely to follow the path of TCS.

    The pharma basket is managing to hold out quite well. There is lots of interest in this space despite the high valuations. It seems like a reasonable play to bet on largely due to the kind of environment that we are currently in. Do you agree?
    In terms of that, the valuations are looking a bit stretched because in the last couple of years, there were a lot of regulatory FDA issues and holding back of revenue. Therefore, translating into the earnings, the multiples look slightly higher.

    If you look back in time, when the companies did not have FDA issues and if you normalise this earnings going into FY22 and beyond, the valuation actually looks fine. There is also a good strong product pipeline in companies like Dr Reddy’s or Syngene Labs in the midcap space, Glenmark Pharma for all that spectacular run of over a 100%, on a one year basis, is still not such an expensive stock. It is still probably trading at about 13-14 times versus what it was trading at about four months ago.

    So it is about the rediscovering of the pharma sector. Along with rediscoveries, there has been a solving of FDA problems. The pandemic has put a greater focus on these companies and what they are doing about it. The earnings are fairly resilient. Given their export profile, Dr Reddy’s, Glenmark, Syngene or Pfizer have a fairly good growth profile over the next few years.



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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