What should one sell in a falling market? Chakri Lokapriya answers

“In the case of metals, if one cuts numbers by even 15%, then because of the opening up trade, aluminium demand will get stronger as also steel demand because of infrastructure push. Then, one can look at the balance sheets,” says Chakri Lokapriya, CIO & MD, TCG AMC

Metal stocks are delivering and metal prices are moving higher, China is cutting rates. Metals may have lost their sheen in December and January, but is the long metal trade back?
I think it is because one of the concerns in the market was that whether it is ferrous or non-ferrous metal, prices have more than doubled, depending on the type of metal and iron ore. As for whether prices could sustain, obviously it would not sustain that kind of a rise from that kind of a jump and the question is how much will it fall to revert to the mean in terms of prices.

So, if one adjusts for all that and then cuts numbers by even 15%, then because of the opening up trade, the aluminium demand will get stronger. The steel demand because of infrastructure will get stronger and then one can look at the balance sheets.


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Jindal Steel and Power has cut down debt from about two times to less than about 0.7 times. Tata Steel has done the same and they are trading at about four times EV/EBITDA which is below peak multiples that you would give for a business which is arguably in mid or towards end of the cycle. If you look at all that at about four times EV/EBITDA, these stocks even if they trade at historical range of 5.5 times, then there is a very good upside of 30-40% depending on the stock from the current levels.

What are you selling?
We are selling wherever companies have missed numbers and where the multiples are high. It is not just high multiples in isolation but where the earnings are not keeping up. Those are the ones where we have been cutting down positions.