Give us a general feeling from where you see the markets there. We are deeply in sold -up territory. Fundamentally, what looks good? Do you believe that the trend we have seen in consumption so far can continue and can actually offer an interpretation for the market?
Chakri Lokapriya: There are two or three important points. First, with American rates now at 25%, export sectors such as chemicals and textiles – which are expected to help profit growth for the index and the wider economy – will probably be left behind. If these rates are negotiated lower, the prospects can improve, but until that time the profit for textiles, jewelry and pharmaceutical products remain largely unchanged. Against this background, there are no major catalysts for profit -upgrades, except perhaps from the industrial sector and to a certain extent the discretionary consumers.
So this quarter we may even see a marginal profit of 1-2%. Given that we can see some chance in industrials, consumer -discretionary and staples – that seem to be bottom, such as ITC and Hindustan Unilever. Besides that, the market does not look particularly exciting.We also had the automatic sales data and we discussed it with Ashwin. What is your opinion about the automatic space at the moment and do you have the preferred wandering?
Chakri Lokapriya: Hero Motocorp seems to be sold over from a valuation perspective. The appreciation is quite attractive. Although the company is now in third or fourth place in market share, behind TVs, we may see some marginal rise as the interest rates fall and we enter the party season. Both Hero Motocorp and TVS Motors look good.
What is your opinion about ITC and the kind of figures we have seen, especially in cigarettes and the Agri -Business? Both segments have performed exceptionally well this time.
Chakri Lokapriya: If you look at the three most important companies of ITC – Cigarettes, Agri and FMCG – the growth of the Cigarette volume was good with around 5-6%. The prices were considerable, but it was not strong enough to fully compensate the peripheral pressure caused by rising raw material costs for tobacco. So although the company looks stable, it is not extraordinary. The FMCG company seems to bottle, which makes the valuations reasonable. I would be an incremental buyer of ITC – it should perform reasonably well.
What do you think of the different comments from L&T and ABB? ABB’s MD spoke about a cyclical correction in order -activity, while L&T was more optimistic about a private -capex -Pick -Up.
Chakri Lokapriya: Private Capex in India should see a marginal pick -up, thanks to the falling interest rates – that reduce both working capital and capital costs. Capex has been weak for a few years and the public capex (both central and state) is expected to rise, which means that part of the weakness caused by rates is compensated. These rates were expected to support industrial, but with the support that is now missing, companies like ABB could become opposite – hence their cautious tone. L&T, on the other hand, can concentrate more on the long-term private Capex revival.
The profit season so far is modest. Apart from icici bank and a few midcaps, we have not seen many upgrades. Would you agree?
Chakri Lokapriya: You are absolutely right. Most companies are waiting for clarity about rates and have therefore not started any big plans. Now that we can assume a baseline rate of 25%, sectors such as textiles, precious stones and jewelry, electronics and especially chemicals – which are expected to stimulate export – will probably not see large income upgrades. In view of this, we can expect a handy profit growth from around 6-8%, unless the tariff situation for India improves.
What is your opinion about some of the smaller banks? Do you also prefer the names of the big cap, or would a bottom-up approach work better now?
Chakri Lokapriya: The results of the Federal Bank emphasize the constant weakness in the microfinance segment, which can last in the following quarter. This can lead to any provision and a slight downward pressure on valuations. That said, ratings are still reasonable. Icici has posted strong figures under large caps banks; HDFCs are stable. Given the current environment, large banks with a wider business distribution are preferred.
What is your assessment of the Realty sector? The index fell by more than 7% last week despite a considerable income, including those of Godrej property.
Chakri Lokapriya: The larger macro trend of falling interest rates is beneficial for real estate. Many companies have built up a solid stock pipeline. Pre-sales data about some names show carefully optimism. However, the ratings have already risen considerably – Godrej, for example, acts an important premium to book value. This indicates a limited benefit in the short term, unless the data for the coming quarters shows a growth in the sturdy.
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