How are things, how are markets looking?
Chakri Lokapriya: The markets have recovered clearly in the last week or so and with the, again the latest round of tariff noise, there is some amount of profit booking.
Fortunately as far as the tariffs are concerned, maybe some of the auto ancillary companies in India will get impacted, Tata Motors to an extent for its JLR a bit, but outside of that given that India is not such a large exporter of automobiles into the US, it is unlikely to have any significant impact on the overall sector or on the market.
What has been your strategy of late, I mean where have you picked your spots, what are you shopping, what are you buying?
Chakri Lokapriya: Simply because the market had corrected, financials had corrected along with that and with interest rate cuts cycle beginning in India and therefore while net interest margins might come down a little bit for banks, but the volumes that will pick up because of lower interest rates as the overall environment revives. So, we have been buying both PSU banks and NBFCs and also Axis and ICICI.
One of the smooth movers we could put it in this sort of a market up cycle or rather a sort of a recovery cycle over the last few trading sessions has also been power, not just banks. Are you looking at that space at this point in time and how would you play the power theme if you want to play it?
Chakri Lokapriya: Indeed, clearly with the economy reviving which means manufacturing revives and as manufacturing and economic activity revives, there is need for more power demand and therefore all the power companies need to produce more power, that is of course the very short term.
And the secular story is of course intact in terms of India is a power shortage country, therefore we need also power. So, we have been buying the power financiers, the REC, Power Finance, extremely healthy companies, valuations corrected a lot, trading under one time book value and they lend today not only to thermal, renewable but also into infrastructure, so that is the space, PFC and REC.
Best performing Nifty 50 stock for one year?
Chakri Lokapriya: That is a very tough one.
Why is it tough?
Chakri Lokapriya: I would say M&M has been one of the good performers.
Smallcap, midcap, and Nifty. We know that smallcap indices have had a great run and I am talking about last 12 months. What is the smallcap return in last one year, 5%, 10%, 15%?
Chakri Lokapriya: I would say roughly 10% guessing, please.
It is a fair point, I mean, the whole excitement in small, midcap stocks that has got completely evaporated.
Chakri Lokapriya: You are absolutely right. But individual stocks have corrected clearly far more and those stocks had actually risen a lot prior to the fall. So, I guess that is where the most of the noise has been, saying that smallcap, midcap has done well. And midcap probably has done better than the smallcap is my guess again.
Where are you hunting in the Nifty? I mean, which spots are you picking up?
Chakri Lokapriya: It is clearly within the banking financial services of the Nifty. So, ICICI, Axis, incrementally maybe a little bit of HDFC and State Bank of India, all the financials basically within the Nifty.
And the auto stocks, M&M, Bajaj Auto, Hero Moto, all these stocks have corrected, M&M has not corrected but Hero Moto and Bajaj have corrected fairly significantly and their valuations are beginning to look far more palatable today.
What is your take when you talk about the real estate pack and especially the fact that you have Prestige Estate, the management coming and saying there is no slowdown in demand. But when you talk about demand also, you have seen a lot of rise in the luxury side of residential properties.
Chakri Lokapriya: Two things, one is the inventory levels in all the real estate companies are today more manageable than they were, let us say, about two years ago.
Second is, clearly, in the last couple of years the luxury segment has continued to do well, has been the strongest pocket within consumption in various areas.
The luxury has held up, that segment of the population, the income has not been hurt. And as far as Prestige is concerned, they have this nice mix of both commercial as well as residential and commercial is also picking up. So, from that perspective, Prestige looks okay. But all these companies are trading well above book value now.
Give us your top ideas for FY26, one, two, three, largecap, midcap, I will let you choose.
Chakri Lokapriya: Power Finance and REC are clearly the top ideas if it is within financials, actually across the board also. Simply because as we have discussed, the stocks have corrected a lot, power is a very important segment of growth.
The books are very clean, the balance sheets are strong, both are Navratna companies, well-run companies and therefore if they go back to their historical multiples, two years ago multiples, the stocks have very significant upside.
I wanted to get your view, especially on the cement pack. We did speak about real estate. This one also is like a realty ancillary play also if you could put it so. You have some comments coming in from JK Cement where they have highlighted improving outlook demand. They are also saying supporting prices which will actually go ahead and drive a healthy FY25 exit profitability for the company in particular. But how are you gauging this entire cement space because this entire year has been a year of consolidation as well.
Chakri Lokapriya: As interest rates come down and the activity picks up, cement volumes will further move up and the pricing has not actually moved up higher than inflation. Inflation-adjusted price increases for the cement industry has not happened, the price increases have been 2%, 3%, 4% which is lesser than inflation rate.
Second is UltraTech on one hand and Ambuja on the other hand are the market leaders because they have consolidated the whole industry and so they are the primary beneficiaries of this entire move and, of course, the other cement companies will also move up, but I will focus on these two.
Could value retail be the story of the year?
Chakri Lokapriya: Retail will clearly pick up simply because one, starting April 1st there will be more income in the hands of people which they can, of course, spend it online or walk into a real shop. But footfalls always increase, people like to go out.
And second is, given now this focus on pricing and it is becoming a regulatory issue, they are investigating Zomato and Swiggy and all that noise will make Zomato and Swiggy step back a little bit on the discounting that they give to products and that is an incentive, therefore, for the consumer to also go back to the retail chains. And the retail chains, again, have corrected and they have not done really that well, so valuation-wise are looking better. So, the answer is absolutely I agree with you.
