market correction: herd mentality to blame for market fall: Chakri Lokapriya

One way to counter market turmoil is to look for companies that are fundamentally reviving ahead of expectations and there are still enough such companies in all industries, says Chakri Lokapriya, CIO and CEO, TCG AMC


What do you think of this sudden market correction? Do you think the market suddenly takes note of the valuation and the growth is not as high as people expected?
It’s more about Pied Piper and the people behind it. It’s kind of a herd mentality. People are rushing to sell some of the stocks with the highest relative valuations. I don’t think this is the high valued stock because Hindustan Unilever is still trading at 60 times the EP and there is no massive sell-off there. It’s just a matter of relative valuation versus relative growth. Today IRCTC, a relatively low margin company, was trading at 60 times and, of course, their other new lines of business were expected to come into play. So that’s an example.

Now, a similar example can be seen in both large and mid cap sectors. I think it led to some profit taking and also to following the Piper because when someone sells, the others follow suit. But otherwise, the underlying revenue growth and profit growth are intact. 70% of all companies that have reported profits in India so far have exceeded expectations.


How can we approach this turmoil in the market? How to use this opportunity? Should we buy from companies that continue to deliver but there may be some supply pressure?
These are different strokes for different sectors. In the banking sector, credit growth remained negative throughout the year. In the last two weeks alone, credit growth has turned positive and the numbers show its credit growth at 17% is well above the overall banking industry average and so we are seeing a positive reaction on the stock.

Axis Bank is once again well positioned. He cleaned up his books. The growth of loans will be faster than that of the industry. There are no new Covid provisions and this can be an approach where one looks for companies where they are fundamentally relaunching themselves before expectations and there are still enough companies in all sectors.

The price range for Nykaa’s IPO was announced last week between 1025 and 1125 and a fundraising of 5,350, given the type of valuation it arrives at, would you have subscribed to the IPO? in stock exchange ?
Indeed, the company has experienced phenomenal growth and is run by a former investment banker and has done very well. The amount of capital raised and the market they are reaching, including their own private label, have grown tremendously. This comes at a time when online businesses are taking off as the pandemic has accelerated migration or rather the increase in usage as well. Therefore, Nykaa is very well placed, he has a wide reach. It still has sufficient lead for further streams of income growth and so it’s an IPO that will do very well.

How to maneuver in the space of consumption because clearly the inflation of the cost of raw materials turns out to be a big devil in terms of volumes or margins, anyway?
Indeed. Some companies manage to transmit part of it, PolyCab has done so. But in consumer names it’s more about market share. Revenue growth has been north of 25-30%, which clearly means demand is returning. Margins were 4-8% lower as all prices increased due to supply chain bottlenecks. Consumption is a very interesting choice and an RBI survey conducted last week shows that about half of people think things are going to get better and half of people think things are not going to get better.

This is always a good thing from a financial markets point of view, as it means that expectations are still under control and there is still a possible upside. This is probably one of the worst quarters for negative surprises on the margin front that people are experiencing now. Gradually, the damage caused by falling margins is not that great, and the acceleration in income will support the equity returns.


Source link

Leave a Reply

Your email address will not be published. Required fields are marked *