Time to bet on rural, not urban theme: Chakri Lokapriya, TCG AMC

In a chat with ET Now, Chakri Lokapriya, CIO & MD, TCG AMC, says end of demonetisation impact and prediction of normal monsoon has brought rural theme to focus.

Edited excerpts:

You have been buying real estate stocks for some time. At first, it looked like an odd bet but that bet has worked for you. What exactly did you buy in the real estate space?

It has been largely companies like Prestige which have a good commercial real estate component because whenever there is a more noise than is actually happening and once the tax implications are clear, it deleverages the balance sheets of all these real estate companies. When you create an operating company and you create a REIT that allows them to clean up the much needed stress in the balance sheet one and that allows them for the growth that is one on one hand. On the other hand, the residential real estate suffered during demonetisation. There is also a realisation even on the part of consumers that interest rates are not going low any further and after that there was a pick up.

Anything from the infra space that you like?There is a big move in not just real estate or infrastructure, one is seeing pure play capital goods as well hold out. Cement is looking good. Is this entire cluster moving up?

There is an ambitious government programme of housing for all and combined with the fact that certain states are doing well like Andhra Pradesh, Telangana, Maharashtra, cement demand is actually picking up after years of downturn. Prices have still not moved up. Capacity utilisations are still low and if you combined that, cement will do well or rather continue to do well. All these construction companies are big. Lower interest rates or lower tax rates move the needle big time for them.

Around the world, whether it is Trump in US or elsewhere, there is a move about reducing corporate taxes. If that move translates in the form of GST for Indian companies and you do not get into the anti profiteering clauses, it will change the dynamics quite significantly.


Why would you buy corporate banks?

The stress in some of these NPAs etc. have plateaued. There is a growing realisation that at some point all these guys have to go out and stop looking at valuations and actually raise capital and that has becomes a self fulfilling prophecy of stronger balance sheet, stronger credit growth, higher stock price.

Just when everyone was betting on what the urban trend is going to be the recovery, here comes a company which perhaps has its ears and eyes closes to the ground in terms of the rural sense of the market. They are saying that the rural recovery is very much in place. Do you sense that now it is time to shift investments to that category too?

Yes, for two reasons. One is coming of a bad December when there were fears of cash crunch, of demonetisation and second is the talk of a 96% normal monsoon .In our recent visits to some of these pockets which buys products for retail, they are seeing very good numbers. Textile companies are also saying that the demand is really strong. This is a commentary coming across.

For the last couple of years, names like Page Industries, Bosch have dominated Indian markets. Eicher could dominate markets for next three years because there would be new horses?

The traditional laggards, the industrials, are at multi-year lows and we have fresh legs coming in if the government’s push turns into reality of more roads, bridges and dams. Even after all this runup, some of the PSU banks are still trading at half the book value of 0.6-0.7 times. From that perspective in terms of returns, you have sufficient returns. Newer sectors will be more in the services rather than manufacturing.

Any opportunities to buy into the pharma space or would you stick with Biocon which has suddenly shot up after being an underperformer for the last many years . Fortunately there is no negative news on Biocon as of now?

Biocon has one of the lowest domestic revenues. It is probably about 8-9% and I think right now we are shifting. Whoever is buying pharmaceuticals are better off buying companies with greater export revenue rather than domestic revenue. If this generic thing is true, it can be a big blow because it is a Rs 90,000 crore domestic industry and Indian domestic pharmaceuticals is largely a branded drug industry. While I do not think it is really feasible simply because you need a lots of controls in place. In this case, Biocon is partly reflecting that.