I guess the expectations was that there would be some action from SEBI in the derivatives market but it was a lot of other announcements that did come about. Did that come as a surprise to you?
Chakri Lokapriya: In this market conditions I think no news flow is good news. Some of the changes are I guess not really necessary at this point in time. Rights issue, shortening the timeline, etc, is okay but T plus zero for FII investors is actually quite a difficult thing because of the difference in time zones. So, net-net of all these things I think it is good that there are not too many changes.
What your outlook is when it comes to the entire auto space owing to what the expectation is then for the month of September. Do you think that better rural sentiment could potentially aid growth? You have got M&M’s tractor sales that have actually disappointed coming in below the pole at 43,201 units. So, what is the expectation this time around when it comes to the passenger vehicles, the CVs and the auto sales numbers?
Chakri Lokapriya: Yes, I think Escorts Kubota is a good one to look at. The company benefits from farm equipment sales that will kind of pick up because of the Kubota access to new products, it enlarges the whole canvas of products that they can offer which is quite good and lowers the cyclicality of the business.
Second, two-wheeler sales will continue to be strong around 12%, 13%, 14% depending on the company. Bajaj and TVS Motors I think still will continue to be strong. On the other hand passenger vehicles, some amount of inventories are building up clearly and so whether the dealer profitability will go down, does not really affect OEMs. So, I think Maruti will tread water. Commercial vehicle sales on the other hand have not picked up.
What is your take on gold loan companies because the Reserve Bank talking about several irregular practices in loans against the pledge of gold ornaments and jewellery, weakness in monitoring of loan to value ratios. Is this going to have a detrimental impact when it comes to the stock prices?
Chakri Lokapriya: I do not think so. I think this is fairly well articulated. It has been on the RBI’s radar for quite some time. Gold prices have reached record highs and therefore also the amount of people taking gold loans against that has also matched with that and then the turning economic cycle upwards, people taking loans will also increase. So, I do not think that this is a well-flagged event, so I doubt it will have any big impact on the stock prices.
I wonder if you had a look at The Economic Times this morning because Kotak Bank’s managing director says that they aim to be the number three private bank by the year 2030, the fourth largest profitable private bank in the country and Ashok Vaswani also saying that they will be scaling up their operations, they will be using technology and grow organically and inorganically. How do you looking at the pecking order and the kind of projections and vision for Kotak Bank?
Chakri Lokapriya: Kotak Bank clearly has always been a marquee bank. Their net interest margins have been amongst the best in the industry. Their approach to banking was always more niche versus the HDFCs and ICICIs of the world and then the whole host of management changes happened and now you have a new external person heading the company and a bunch of existing management who have left or leaving the company. So, there is some amount of management churn and until that settles down and then after that we will see the Kotak regain its strength.
Curious to get in your take as to what my colleague Varun just flagged off, talking about the consumption space and what it means for the likes of a Dabur, a Havells, a Crompton, GCPL, etc. What is your outlook? What is the expectation when it comes to rural demand recovery?
Chakri Lokapriya: If we split down consumer into let us say two or three categories. One is, of course, let us say the PVRs of the world. We are going into the fall season, lots of new releases, lots of new festivals. I think there you will see an uptick whether it is in the tier I cities or going down the chain. Yes, it is not truly rural, but it is still semi-urban. Second, in terms of what as far as Havells and Crompton is concerned, all these companies are trying to be all things into all people and they have gotten into different segments.
Havells started off as a cables company, today has lighting, fans, and other gadgets and Crompton has expanded into the other segment. So, which means the margins for the whole industry will come down, which means the multiples of the whole industry will come down.
Against this backdrop, we need to look at the stocks with a lower outlook and therefore, I will stay away from the sidelines. Now, as far as Godrej Consumer is concerned, even though it is supposed to be a stable demand kind of a thing, we have not seen the traction and so I still stay away from the stock.