Among global economies, the US and India are not showing signs of a deflationary trend and that is comforting, says G Chokkalingam, Founder and Managing Director, Equinomics Research. Chokkalingam said that factors such as robust fuel consumption data, monsoon pushing agriculture and banking sector inching toward a double-digit growth give confidence that the Indian market is headed for a very good time in the short-to-medium-term.Chokkalingam is positive on stocks such as MPhasis, Andhra Sugar, Bharti Infratel and Interglobe Aviation. Below is the verbatim transcript of G Chokkalingam’s interview to Prashant Nair & Reema Tendulkar.
Prashant: The market is looking phenomenal, right?
A: This is what I have been saying for last six months consistently ever since the monsoon forecast came. I still believe that our Indian market should cross all time record high by end of December 31st.
The most important point is that among all the economies in the world only two economies, US and Indian economy are not showing any signs of deflationary trend - that has given me a lot of confidence and along with that this morning we saw the robust fuel consumption data and all of us know that monsoon would push agriculture growth.
However, even banking credit now is slowly limping back to the double digit growth and we saw excise duty collection a couple of days back, which gives me some comfort on the aggregate demand shifting vertically. Therefore, I continue to believe that we are headed for a very good time in the short to medium-term.
Reema: What about individual stocks which one would you bet on? IT has been down in the dumps for the last many months but in that one stock which has done relatively better has been Mphasis after Blackstone made its entry. Would you bet on it now?
A: Yes, to be very fair we advise our clients even around Rs 440-450 level but we are still buying. Even today we have been buying the stock. The new promoters are basically private equity investors. There is a big difference between the promoter and private investor acquiring the company. They spent about USD 1 billion. Now easily they can take back almost USD 300 million in case they decide to give special dividend. Apart from that valuation wise it is still quoting around 13 price to earnings (P/E) on one year forward earning. So, considering all these facts I firmly recommend this.
Reema: It is a dividend play?
A: Even in terms of valuations and also as I mentioned the core objective of the private equity investor, who has acquired the company, is to create more wealth for them in the process. They have already started talking about the product company which they launched in the US. So I see lot of triggers emanating for wealth creation for the private equity investors as well as for public share holders.
Prashant: On to sugar now, you like Andhra Sugars?
A: The name is slightly misleading. The chemical contributes almost 80 percent of the turnover. Recently they shut down one sugar mill and that's in a big city and there is again land bank story, apart from that it is a chemical company and also into many other products. It is trading at around 8 P/E. I wanted to talk about this because today 2/3rd of the midcap stocks are in bubble zone. So, one has to have a valuation comfort and this stock gives me lot of comfort.
Prashant: What does it trade at, what is the comparable?
A: Around 8 P/E on current year earning.
Prashant: Which would be the comparables?
A: It is second largest producer of caustic soda so if you take other caustic soda companies they are all quoting around 12-14. If you take Chemfab Alkalies, the valuations are highly stretched and this is the second largest producers and also investment rich company. It has got investment in Jocil, which is a subsidiary; it's also a listed company which supplies inputs for MNCs, FMCG companies. It has got investment on Andhra Pradesh Gas Power Corporation which is unlisted but it is a phenomenal value. So, investment itself should be more than the market cap and for last five decades it is free from the labour unrest and it has been given dividend without any interruption. It has also got into aspirin which is US Food and Drug Administration (US FDA) approved and now recently they are setting up a coal based power plant to supply power at low cost to the caustic soda business.
However, the promoters holding is around 47 but you will be surprised to know that this asset rich company not even a single promoter has got more than 3 percent stake. It is a highly diversified across some 47-50 investors. So, in the long-term there is a possibility of even consolidation.
Reema: Why you are betting on Bharti Infratel?
A: As I have mentioned earlier also that it is very difficult to find lot of stocks with valuation comfort. I do believe that 2/3rd of the midcap stocks are in bubble zone. Therefore, I would advise investors to have a valuation comfort and Bharti Infratel gives that kind of comfort.
However, from 52 week high it has come down to about 25 percent. A lot of cash on the books and the main trigger according to me is that the kind of competition we are seeing in 3G, 4G mobile business that demand for tower would keep rising, so that should be positive for Bharti Infratel.
Prashant: IndiGo - Interglobe Aviation is the last one?
A: I don’t need to give any big introduction; all of us know it is a leader with 40 percent market share. However, important point is that it has got net of cash zero debt, which means it can go for leveraging and expand the fleet in a big way. Oil price again after touching USD 52 per barrel it has come back to USD 46 per barrel.
From two year peak it is more than 50 percent down, which is a big positive for an airline company. I firmly believe that the service sector, the way it is growing at above 8 percent now is going to be very big positive for an airline company like IndiGo. Therefore, I firmly recommend this stock.
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