All the growth companies which are available at low valuations -- both financials and industrials -- will tend to do well, says Chakri Lokapriya, CIO & MD, TCG AMC. Where is all this bearish narrative which came in the market when bond yields started going above 1.2-1.3%. Right now, bond yields are at 1.7% and nobody is worried. Is this complacency or is the market telling us that growth is back and inflation will not come back?When the yields first started moving up, then the market had to figure out whether the growth in earnings of companies will outpace the rise in yields. As long as the differential between the growth rate of earnings is higher than that of the growth rate of the yields, markets tend to do well and in this case, the rise in yield has come because of expectation of a return to inflation. As far as the developed markets are concerned, that is a good thing because they have been fighting to move away from the zero interest rate mark. Now, with a $3-trillion stimulus coming from the US, the amount of infrastructure push and growth stimulus that they are going to give will clearly reinvigorate growth. It is a similar story in the case of India. With all the various initiatives by the government and the PLI schemes, manufacturing has come back to an extent after the lockdown. Still it is not where it was and the services like hotels, airlines, etc are still not completely normalised. There is room for earnings to accelerate further and if that is the case, then all the value type of stocks, i.e., growth companies which are at low valuations -- both financials and industrials -- tend to do well. How are you aligning your portfolio? Are you still of the view that the good old pharma, IT is the way to go or do you think it is time to reorient portfolios in favour of cyclicals? Do you think the rotation in the market has started?The rotation has indeed started, one of the reasons being that if you just take the valuations, Tata Steel, JSW Steel or even Jindal Steel and Power all these companies are still trading at only about six times EV/EBITDA. That is a very decent number in terms of valuation and especially in an environment now where the growth is accelerating both domestically and also globally. The Indian steel companies are well placed both from domestic volume growth and at export volume growth perspective. Also pre-Covid, they were deleveraging. Their balance sheets are far better today. So six times leaves adequate room for further upside. Cyclicals are the way to go. L&T for instance, at the end of the day, trades at about 16-17 times. This is the largest infra company in this nation and clearly can grow its earnings much faster. Therefore valuations will re-rate. What is the expectation from some of the IT bellwethers whether it comes to earnings? This quarter will see some amount of earnings upgrades in IT bellwethers. Most of the geographies that they focus on -- the US and Europe -- have gone for various stimulus packages aimed at specific sectors and all these sectors whether it is retail or banking or even defence and infrastructure, are all very high users of technology and digitisation is something which all these companies have been accelerating. If you look at their IT spends, the Budget that they set aside all these various sectors have been increasing. The outlook for IT companies will be steady with good earnings visibility and upgrades in the coming quarter. What do you make of what is happening in the IPO market? There was disappointment over Kalyan Jewellers and the much hyped Nazara Tech for that matter. While it had listed with a bang, it has mostly been locked in the lower circuit.It is a very company specific story. In the case of Kalyan Jewellers, the valuation was an issue. Nazara is a great company. Gaming as an industry will grow. The revenue is still very small. It will grow. But again valuations was an issue but this company will do well. It was not priced cheap. It was priced through the market. So some amount of money is being taken off the table but Nazara as a company and a stock price will do well in the coming months.
from Economic Times https://ift.tt/3rAoGA4
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