Talking to ET Now, Chakri Lokapriya, CIO & MD, TCG AMC , says among large-caps, IT, banks are doing well and metals are expected to exhibit good earnings as well. Also, after ONGC-HPCL merger, government would have exceeded its divestment target. Overall, stage is set for Nifty to move higher before Budget.
Let us start up with Reliance, the numbers came in post market hours on Friday and would you say that the Street would be justified in giving the stock a further buy?
Yes, the Reliance earnings were very good and if you look at the various divisions, the petrochemicals has done far better than expected. Jio of course has turned round the corner sooner than expected. Refining margins are trading at a good premium to the Singapore complex of about $4.4. Against this backdrop, seeing that their capex seems to have topped, we will see an improvement in its ROE going forward and to begin with its valuation is not demanding. The stock goes much higher from the current levels and mainly its petrochemical division and refining division are going to be the engines of growth over the next one year or so.
Do you think the initial set of numbers which we have got are pointing to a big surprise rather than disappointment? Who would have thought that TCS and Infosys will give a constructive commentary? The HCL Tech management appeared optimistic, bullish, robust and happy.
You are absolutely right. Two things have happened. One is because of the proposed tax cut in the US, it has changed the sentiment in the US in terms of their spend. R&D spend and IT spend are important components of any US corporate spend. Now against that backdrop, financial services as a sector is further strengthening in the US. They are a very big component of IT spend and major sectors like energy or retail are seeing phenomenal changes. Against that backdrop, Indian IT companies' valuations are not demanding anywhere from 14 to 17 times and it gives a good support. If the stocks make a good 10-15% over the coming few months, from that perspective the outlook is strong.
It is a march down to 11,000 on Nifty and ahead of the budget, that will be seen as a strong mark of confidence in the markets. Of course, part of this rally is also linked to what is happening with global markets. But even so, what are the one or two themes that you would for in the markets at these levels before the Budget?
Two or three things are happening in the large-caps. IT as a sector is showing better than expected earnings. At least, there is stability. HDFC Bank, Kotak Bank all are showing good numbers and Reliance numbers are also very strong. So, there is a good amount of support for the Nifty and from that perspective, the numbers that we will expect in the coming few days from the metal companies will also be strong. That sets the base for the Nifty to move higher.
Second from the ONGC-HPCL merger viewpoint, it reduces the risk of worsening fiscal deficit because now the government has met and beat its disinvestment target for the year. This lowers the pressure and also probably lowers a little bit of the worry that the government may introduce long-term capital gains tax. Against this backdrop, there is scope for the Nifty to move higher from current levels in the short term.