As benchmark indices Sensex and Nifty scaled new lifetime highs on Friday, Chakri Lokapriya, CIO & MD, TCG AMC, explains what’s driving this leg of the bull market. Edited excerpts from an interview:
The market is continuing to move from strength to strength. What is the latest trigger?
There are four triggers the way I look at it. The first one is the easing of borrowing cost for service sector like travel, restaurants, etc and also for various other such businesses and MSMEs. As lockdowns ease, they (businesses) will begin to come back and they will need a lower borrowing cost.
The second factor is the pace of vaccine drive and the pricing of vaccines for the private sector. The economic recovery is going to be dependent on the pace of vaccination drive. The third and fourth factors are expectations related to fiscal measures for both rural and urban India. Execution has been a problem because of lockdowns. Rural incentives are also important. I think these are the four catalysts which will define the next leg of rally.
What is the long-term story looking like for TCS?
TCS is one of the most well-run companies. It has shown margin improvement on the face of adverse conditions due to the lockdown. The demand has been robust. One of the biggest factors driving margin improvement will be international travel. The onsite-offsite mix is going to make a big difference, unlike the previous years. The second factor is the accelerated adoption of digital technologies, including cloud computing. The pace was not there before the pandemic and now it is not going away. These two things will take the company higher. Its revenue will grow at 8-10%, which is a very big number for a company of that size. Their cash flows helps not only TCS but also other group companies.
How you are looking at the entire cluster of power stocks? Of late, this basket has been very active.
Many power stocks are trading below their book value. Take NTPC as an example. It is trading below its book value because the country has been under lockdowns and so the demand for power has been low. Now as the economy unlocks and demand picks up, its bottom line and book value will also improve. So the stock will look even cheaper. It is fairly certain that at some point, depending on the pace of the vaccine drive, the Indian economy will open up. So NTPC looks good. If you look at Tata Power, it is a similar story. It is slightly more expensive at 1.5 times its book value. There is also a talk about some new policies which may help power stocks. But just the unlock theme is sufficient to correct some undervaluation.
Which stocks look attractive to you in the midcap basket?
It would be the consumer names and unlock trades – Crompton Greaves or Bata. These are the companies which have underperformed over the last one year. As India unlocks and these companies gain back their traction, I think a decent upside of about 20-25% is possible in these stocks over the next 6 to 12 months.
