Good time to start looking at buying IT stocks: Chakri Lokapriya

"So from that perspective PSU banks because they are the ones who fund infrastructure, cement all these cyclical sectors, near-term cyclicals are the ones which are likely to do well and therefore these are the sectors which have underperformed and they can hold and take the market up probably a good 10% for the rest of this year," says Chakri Lokapriya, CIO & MD, TCG AMC

When will markets go higher?
The good news is that both at the central level and at the state level the fiscal deficits are in control so this allows the states as well as the centres to do a lot of capex infrastructure spending and that will not only kick start the growth of the economy, the underlying bit of it, it creates jobs important for in the run up to the elections.

So from that perspective PSU banks because they are the ones who fund infrastructure, cement all these cyclical sectors, near-term cyclicals are the ones which are likely to do well and therefore these are the sectors which have underperformed and they can hold and take the market up probably a good 10% for the rest of this year.

Wondering whether IT has bottomed out or not and is there any merit in correlating to what the Nasdaq’s performance has been, we were just looking at it, year to date it is already up almost about 5% or so.

Indeed and IT, the sector has bottomed out in terms of its valuation. So all the fears about the slowdown in the US impacting order books is reflected if you look at the multiples. Basically the last, now this ongoing quarter, there is an expectation that the order book will be even more muted.

The multiples are close to their growth rates, about anywhere between 16 to 20 times. So the downside is not that and any hint that an inflation is slowing down, the economy is reviving in the US will take these stocks up so I think this is the time to actually buy the stocks.

We were, of course, talking about whether it is Axis Bank that is going to see the biggest re-rating especially after the numbers that have come out, we have got the numbers from the private sector lenders, would you agree?
Axis Bank and ICICI both have good numbers. It is a trend which is evident across the banking sector which is NPAs are down, loan growth is improving, deposit growth is improving and all the provisions are very strong so that there is a protection against any bad loans. So, now what is the needed is economic growth which will kick start the credit growth.

It trades at about 1.7 times book so it is not an expensive bank. So there is a significant valuation comfort in Axis Bank and there is a good 25-30% upside from current levels.

What about PVR because if you have got that as the big multiplex chain, Bollywood after Bollywood movies not doing as well but if we look at the last one year stock has given what a 7% like return.
Indeed if you look at the sector as the media sector, the movie sector, it has kind of done very well last year overall. What PVR is all about whether it is Bollywood or south movies do not matter that much in the mix after some of the acquisitions that they have done, so the industry itself has raised about I think some Rs 10,000 crores in the last one year. So the prices of the tickets are yet to move up. Yes you will have the individual movie releases where you see a short-term spike up but still the prices are below average and so they are stepping up on their food and beverage services within the multiplexes to add to the overall prices so at that time with a fairly big slate coming up and having a significant market share more importantly and expanding into tier III I think PVR is a good stock to hold.

But why?
I understand the people are moving to OTT watching movies but still as an entertainment for a day out for many families it still remains a very important source of entertainment and an outing and a social gathering. If you look at outside of the big cities, the smaller cities still do not have an experience which is what PVR is now creating. They are coming up with the things so from that perspective still going out is an important source of consumer spend, translating into revenue for these guys.

Wanted to get in your take on what the outlook is for L&T just a short while ago we were discussing this counter, yes there is a favourable capex cycle when you talk of this space, the name that definitely comes to mind is always L&T. Do you believe that we are likely to see that re-rating and that catch up play?
Given that a good nearly 40% of its valuation comes from in the information technology, its holdings in these IT companies have not done well for the last year. IT as a sector was down a 25%-30% last year and all those fears held back L&T's valuation, IT exposure valuation.

Second, capex itself was not strong because of the rising interest rates but now with so many state elections leading into a national election and the state financial fiscal budgets being strong so which means they have the ability to spend. I think IT is well positioned and will fire on both the engines.

For a whole host of reasons whether it is the AT1 bonds that cannot classified as equity which was the ruling of the Bombay High Court to results where we have seen a dramatic increase in provisioning. Look at the way Yes Bank stock has performed my question to you is, when this stock is down 10% and available for nearly Rs 18 a share would you be a buyer?
There are enough other banks which are at attractive valuations whether within the PSU or the private space so I would rather stick to that because Yes Bank still has to do a lot of clean-up of its books. It is a doing a great job but still there is a lot more time so I would stay by the side lines for now.

Let us understand the implications of this. Let us say, if I mean RBI is going to take this entire decision by High Court to the Supreme Court. Now Supreme Court will have to decide whether Yes Bank will have to pay back to the bond holders or not. We are looking at about 8,000 crore plus. Yes Bank's profit for the quarter gone by was in double digit. Now imagine if Yes Bank has to pay back to the bond holders, and if this does not get converted into equity, what will happen?
Indeed that is the biggest risk. The second is the time risk which is when do these judgements etc. come through. And when that happens it wipes out quite a significant capital base which will not only be a strain on the bank but also it impairs its ability to function as a bank because many banks have a basic function of lending and borrowing. So with so much of uncertainty both in terms of time line as well as what it will do to its balance sheet it is best to stay on the side lines with regards to Yes Bank.

Is HCL Tech the strongest one?
HCL Tech still has valuation clearly on its side and they are one of the few companies who in their earnings announcements said that their order book still continues to build at a fairly healthy space. HCL Tech always has had this thing of doing one quarter well, one quarter bad but overall the company’s valuation is on its side, margins are improving, so I think clearly HCL T is a buy at current levels.