So, how important is the spike in bond yields and what kind of impact do you think that could have?Chakri Lokapriya: The impact of that is clearly a bit unnerving at one point. So, the only thing that will help in as far as India is concerned is we should see evidence of an earnings acceleration, because so far we have seen only earnings downgrade, only then it will justify the valuations going forward.
Let us analyse some numbers and InterGlobe Aviation, it is, of course, a strong forecast for FY26, the management believes that all those geopolitical turbulences could very well be behind them. What is it that you anticipate in terms of where the stock could actually move from here and do you sense further upside?Chakri Lokapriya: InterGlobe clearly in the short to medium term is well positioned. It has a few things going in its favour which is oil is down and that is the biggest component of its raw material costs, fuel cost, and outside of that traffic growth continues to remain strong.
And now in the traffic, in the peak season that we are going into which they do not have presence, that is the international segment, they are launching a new segment that may add some incremental bit, but not really, but just the domestic factor setup in itself the outlook for InterGlobe is good. In any case, I am sure everyone must have already exited IndusInd Bank, but what is it that you are making of the commentary because it is not just about core profitability or that one-time adjustment of forex, but there are many one-offs which I guess have led to this massive loss that they have incurred.Chakri Lokapriya: You are absolutely right. In this environment when a new CEO is going to come, it is going to impact a lot of changes, operational changes, operational uncertainty within the bank on top of their existing problems of asset quality, provisioning, accounting issues. So, it is best avoided and not touch for quite some time until things settle down.
What is your view on IndusInd Bank, I mean, it just everybody knows the bad news. We know that there is a derivative laws. We know that there is a problem in MFI. And we know that there is no CEO. I mean, are markets pricing all the bad news?Chakri Lokapriya: I do not think so, simply because while the market might be pricing in news, what is still uncertain is about how will whoever is the new CEO, interim, how the operations are going to be run? How is it going to be cleaned up?
All this will take away the focus of the company from its core lending and borrowing business and instead focus on fixing the house. So, growth and operations is a casualty.
I was just looking at the charts of BEL and the stock is pretty much around its 52-week highs. We have seen a renewed vigour within the entire defence pack as soon as the geopolitical tensions with the neighbour actually sprung up. Wanted you to tell me that other than BEL, where is it that there is valuation comfort within purely the defence pack.Chakri Lokapriya: Within the defence pack, well Bharat Electronics clearly is well positioned as you say. Hindustan Aeronautics, Mazagon Dock are also looking good. These are all one-off companies in terms of not too many people can make submarines, not too many people can make aircrafts. And outside of that somehow related thing would be railways, but the simple fact that now with the increased scrutiny and border controls, it is likely to see more railway penetration across all the more sensitive areas and therefore, companies like Titagarh Wagons, Jupiter Wagons all these companies are also likely to see, given that they have corrected quite significantly.
Just wanted to understand given the market construct right now and all the dynamics at play, is there anything that you are overweight on currently or recommend buying in this market or would you say just sit back because you do not know how the global markets are really going to pan out from here while we have done okay from those March end lows, but guess this is not it.Chakri Lokapriya: You are right, in terms of, we have rebounded quite sharply over the last month and a half, against the backdrop of earnings not actually being cut in this current quarter but we would still be overweight financials and industrials because that is where there will be tailwinds with an RBI rate cut and eventual uptick in corporate earnings and therefore spent. So, I think those are the two areas, within that PSU banks and some of the obvious names in private banks and within industrials the EPC companies.
Also, give us some sense that what are you really pencilling in when it comes to the pharma space because just yesterday, we have seen the pharma index was actually in the pink of health and of late, it did not participate much in the kind of selloff or rather volatility that we have seen. Do you believe this still offers value and one should look at for a long-term opportunity, well of course, with earnings CDMO as a segment has done very well.Chakri Lokapriya: The pharma sector is clearly still wait and watch of the US tariffs. The US tariffs actually in the case of pharmaceuticals there is one rate for the branded drugs and one rate for the non-branded, generics, and the non-branded is where largely India belongs.
So, there the tariffs are likely to be much lower, but even assuming that there are a 10% tariff that we have in any case, that is largely baked into the numbers and so if that is the number that it turns out with the trade talks, pharma as a sector, companies like Sun they will show that 10% types of growth, they are positioned and the valuations are not heated, so whether it is Sun or Cipla, or Lupin all these companies are positioned for about like a 15-20% upside.
