8 cement and fertiliser stocks to bet on now: Chakri Lokapriya

"Within FMCG, there is no real positive surprise built in and I do not think the multiples either are asking you to buy them. So I still stay away from pure staples,” says Chakri Lokapriya, CIO & MD, TCG AMC.

What do you make of the texture of the market at this point of time? It is the HDFC twins which are under pressure although the midcaps continue to buck the trend. Do you see good investment opportunities in any of the pockets now?
The consumption holiday theme is likely to do well. So the likes of Indian Hotels, Chalet Hotels, Thomas Cook will do well with the holiday season coming up. Their occupancy level is still below pre-pandemic levels and their margins are still below pre-pandemic level. There is sufficient room for margin expansion to bring down the overall multiple.

Second are the fertiliser stocks. The government is likely to increase the subsidy to counter raw material price increase. In combination with that, companies like UPL has had a significant good set around the global markets and it is trading at a very attractive valuation.

One of the concerns over integration of its acquisitions is now over because it is integrating its acquisitions well. So UPL and some of the other fertiliser stocks like Deepak Fertilisers and even Jubilant Ingrevia are the names we are looking at now.

What have you made of what Infosys delivered in terms of the attrition rate?
There are two things – one is clearly there will be margin compression because of the high level of attrition. Again with the markets unlocking, it is back to office and back to travel and that is increasing operating expenses. However, the demand environment remains exceptionally strong. This is across markets and across largecaps and midcaps.

Despite a lower margin, there will be some amount of currency mismatch. But I think a falling currency is clearly good. So while the IT margins will be lower, the top line will largely be in line to slightly lower. Overall, the company is extremely well positioned for the longer term. Over the next one year or so, the stock will do very well.

What are you working with on the basis of volume growth and efficiency mix? Is it the largecaps that stand out versus the midcaps in cement?
Largecaps and midcaps are all looking good because some of the concerns are very well factored in and that is the high raw material prices which impact margins. Low capacity utilisation is putting a lid on operating margin expansion.

The various lockdowns including the most recent lockdown again impacted volume. And, of course, most importantly, the rising commodity prices. All these things have kind of reversed. The unlock is happening. Raw material prices have been coming off a bit and demand is clearly going to improve assuming there is no lockdown. So, JK Cement, Heidelberg Cement, JK Lakshmi among smallcaps or even Ramco Cements are looking very attractive.

Among the larger companies, UltraTech is also looking good. Cement as a sector that will clearly benefit from the infrastructure push that we have been long waiting for.

Is it time to buy FMCG? Should one go contra there too?
I would still stay away from FMCG. If it is a pure consumer like Zomato or Tata Consumer clearly yes because consumer spending is coming up, IPL is going on and there is going to be an increase in spending on food helping companies like Zomato. There is going to be an increase in travel spend in the case of some of the consumer travel related companies. But within FMCG, I think there is no real positive surprise built in and I do not think the multiples either are asking you to buy them. So I still stay away from pure staples .