Chakri Lokapriya is bullish on PSU banks, here’s why

With fall in oil price and rupee appreciation and the bond yields improving as well, PSU banks are likely to do well, Chakri 66876115 66865058 66863516 Lokapriya, CIO & MD, TCG AMC, tells ET Now. Edited excerpts: It seems like the worst is way behind us. But do you actively hunt for mid and smallcaps now or are you moving away from largecaps already? In terms of financials, we will stick to the frontline names. As far as the other sectors are concerned, wherever there is a good amount of earnings visibility, stocks have corrected quite a lot. The appreciating rupee has reduced the raw material pressure, the input costs and therefore their margins will improve assuming that rupee does not fall back or it does not go back up. Against that backdrop, we look at midcaps which will benefit from the reversed market conditions of and oil fall and a rupee appreciation.Where are you placing your bets in the market currently? A couple of things have happened – with fall in oil price and rupee appreciation and the bond yields improving as well, PSU banks are likely to do well. Also, RBI has eased norms for both PSU banks as well as NBFCs. PSU banks in terms of their capital requirements, have one additional year. It reduces their burden to raise capital tier I in the coming months and as PSBs like State Bank of India is still the leader. It is still very cheap. Also, the credit cost for a largecap like SBI or a midcap like Union Bank has been coming down quite significantly in the last few weeks.. Given that they have low valuations and have lesser capital requirement, PSU banks will able to sustain a rebound in credit growth which will be per course for SBI at about 12-14% and in the case of Union Bank, it was hardly zero. It is close to zero last year so any improvement form there is a welcome thing.Do you think all the bad news is in the price of MCX? Potential competition has now come to the doorstep of MCX because the BSE and NSE. Do you think is it safe to ignore that? I would continue to stay away from all exchanges. Look what happened to National Stock Exchange, NSE. It was supposed to have gone public a couple of years ago and various issues one after the other have delayed its IPO. Also, whether it is BSE, NSE or even MCX, these are all politically sensitive companies in terms of the price that they charge, the services they can offer and if so, at what rate. We are moving into an environment where these will be traded like utilities going forward. There will be multiple de-rating and because of greater regulatory oversight on all exchanges, they have become a commodity provider. Whether you trade on one exchange or the other, what difference does it make if your only differentiation is the price of the trade that you are paying on one exchange versus the other? Against that backdrop, if you fast forward, maybe in next three-four years, the margins may come down even further. Yes, volumes may go up but for a volume play, I would rather stay with lots of other fish in the pond. Do you think the time is right to buy into telecom stocks or do you believe that wait going ahead, we will get better opportunities in the next six months? I would stay away from telecom and not just for just next six months. It is just a volume game. It is a low-margin game and also increasingly a huge amount of debt to service. Vodafone-Idea even after the proposed fund raise will still be trading close to bankruptcy level and that is not a good place to be. Bharti is not much better with ARPUs bottomed out. Maybe there will be some relief in terms of their margins but it is still way off to be an investment case. I would continue to stay away from the entire telecom space of Bharti and Vodafone.

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