75% of funds flown to 10 large stocks: Chakri Lokapriya
98% of the listed universe is trading at discount to what is happening to ultra mega cap stocks.
What is your assessment of the market now? What could be the biggest risk to the market sustaining at these kind of elevated levels?
You know the markets are at an all-time high but the good news is it is an all-time high only because of about 10 odd stocks. 98% of the listed universe is trading a big discount to what is happening to this ultra mega cap stocks. From that perspective, if you look at fund flow allocations into these large 10 stocks has been probably three-fourth of the entire flow.
As the economy continues to revive and the margins start to show improvement, the action shifting to the broader market where the valuations are fairly attractive. when you say broader market, we are not talking small companies, we are talking companies north of Rs 30,000-40,000 crore in market cap. There is a fairly strong universe. Jindal Steel and Power yesterday won the auction. That is a company which is also deleveraging. So, the opportunities are quite immense. From that perspective, we will see a broadening out of the rally.
What is the outlook on the insurance sector? The business momentum has been slowing a little bit over there. Do you believe SBI Life, ICICI Pru Life will continue to outperform?
SBI Life and ICICI Pru both look very good, both from a near term and a long-term perspective. The long term story is well known. There is huge under-penetration, a vast amount of growth and still a long way away from maturity. Against that backdrop, some of the valuations have run up a little bit but in terms of growth, if you see ahead, you can see that it is clearly a secular story. From that perspective, we will clearly be buyers of both SBI Life, ICICI Pru and also some of the other names in the insurance space.
What has been your assessment of the earnings season so far?
This earnings season, we have seen a modest amount of beat coming about for about at least half of what is reported in terms of the bottom line. There is a margin improvement and if you look at their commentary, it is fairly okay, it is not really pessimistic. They all recognise there is a demand slowdown but the corporate tax cut has helped in keeping up with estimates. In fact, net-net you would have an earnings revision up for FY20 as a result of that. Now, all eyes are on the real recovery that is expected in FY21 earnings.
How you are looking at some of the earnings that we have seen for the capital goods space? L&T has managed to stick to their guidance. Does that give you conviction of the prospects for L&T and what is the outlook for the space?
L&T delivered good numbers and their guidance is fairly in line and it also gives you a sense that things have not really been that bad. Yes, there is a weakness, but more importantly, the analyst expectations are very realistic and from that perspective, companies will be in a position to beat expectations. Many of these companies are also benefiting from lower input costs and are seeing some amount of margin expansion which is helping the bottom line. The way the order books are developing, it seems execution is just a matter of time and in probably six months or so, it will be more broad-based given that the government’s push in infrastructure and across the industrial space is fairly well known.