In Reliance’s largest business – oil and petrochem – volatile oil and gas prices can put a little bit of uncertainty in forecasting EPS, which will mark the quarter as volatile. The overall uncertainty impacts the consumer-facing businesses. Also, it is one of the largest stocks, which is held by FIIs. So whenever it comes to reducing India positions, Reliance is among the first stocks where the weights are cut, says Chakri Lokapriya, CIO & MD, TCG AMC
On Tata Technologies IPO
Clearly it is a positive but it would not really move the needle much in terms of Tata Motors because the balance sheet will become stronger. So that is the good news and it will become more the sum of the parts which is good because when you value a company, it is easier to do so if it is in a single line of business.
Second, the IPO itself is a good thing. It is an attractive company. It is in an area where there is a very growing interest in the US and in the advanced markets. Part of that can at some point reflect back into the Indian technology space. If one looks at all these parts, it is a good thing for the IPO in itself. For Tata Motors, it brings in a couple of thousand crores into the balance sheet and makes the balance sheet stronger. But over and above that, I do not think it does anything meaningful for Tata Motors.
You will not buy Tata Motors because of this news, is that what you are indicating?
You are absolutely right, I would buy Tata Motors as a company because it is looking attractive. The balance sheet is becoming stronger.
What is keeping you busy this year? Where have you shopped? Have you taken some chips off the table? What have you exited completely?
This has been a very volatile year with constantly changing news and I think the discussion on the US is really relevant from an Indian perspective because the US labour data has proven to be constantly stronger than expectations. The economy is still strong, the Fed does not have any other idea other than increasing interest rates which the market believes it should not be doing. In this battle, the curves have inverted.
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In fact, the Indian yield curve has also inverted which is not good news because it is telling that the economy is slowing down and consumer spending will come down and the capex as well will also go down. This is a market that needs to be very diversified and has to be a positional market because the news is constantly changing.
So you can choose, 7 days, go to Delhi, come back, it is cheaper but if you are planning a summer holiday to Delhi, do not go.
I think clearly what this is telling us is that this year's holiday season will be a very strong one and those trends seem to continue from last year. There is a mix of hotel companies because both Indian Hotels and Chalet have a combination of both business as well as leisure travellers whereas if you go down to the Thomas Cooks and the Mahindra Holidays, it is largely leisure travellers. These companies have corrected fairly significantly on interest rates and all kinds of fears but the holiday season seems to be turning out to be fairly strong. So, looking at some of the travel companies like hotels is a good thing.
Why is Reliance despite firing full cylinders massively underperforming the market?
All their businesses are doing well. Their largest business, in terms of spreads with such volatile oil and gas prices going for the rest of the year, can put a little bit of uncertainty in forecasting EPS, which will mark the quarter as volatile.
Second, the overall uncertainty impacts the retail business that is all the consumer-facing businesses.
Third, it is one of the largest stocks, which is also held by an FII. So whenever it comes to reducing India positions, Reliance is among the first stocks where the weights are cut.
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Why is a stock like Grasim not getting its due? It has got fantastic businesses which are incubating in its balance sheet.
Holding companies always carry a discount and that holding company discount is there in Grasim as well. Capital allocation for a holding company keeps changing depending upon the company's preferences and therefore, assigning values in sum of the parts is always a problem.
Second, their paints business is a business which everybody is getting into, especially the large corporate. Simply because previously there used to be two or three players, strong margins were possible and that made others get in and now margins are going to come down dramatically with competition coming. A combination of general uncertainty and holding company discount is the number one factor.
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