Why Chakri Lokapriya Says Investors Should Wait Until November To Buy Bank Stocks

While bank stocks are cheap and valuations “okay”, investors should not buy them at least till November, according to Chakri Lokapriya.

That's because the veteran investor thinks the sector's revival depends heavily on the Supreme Court's verdict, to be pronounced on Nov. 2, in a case involving large borrowers.

He said if the Reserve Bank of India further acts on the “interest on interest” waiver case in the apex court, things will normalise. Else, the sector will continue to languish, he said.

“Investors must wait and watch how things pan out on the moratorium side as the underlying judgment will impact future borrowing,” he told BloombergQuint in an interview.

Lokapriya also said the speed at which decisions are taken towards recovery is more important than the decision itself, adding that the sector's recovery is possible only by 2022-23.

For an emerging market like India, banks and financials is the only system which would drive credit growth, he said.

However, the market veteran also expects a bull run in the broader markets, adding that recovery from their lows in March was “just the beginning”.

There was neither just a supply or a demand shock due to Covid-19 but an artificial scenario with lockdowns freezing demand and supply, he said, adding once lockdowns ease further, demand and supply will recover at the fastest pace in years.

When asked about the specific sectors that he's bullish about, Lokapriya said he'd look for business momentum. “When the uncertainty for the banking sector ends, it will re-emerge as the main catalyst for market growth.”

Here's what he said on specific sectors:

On Information Technology

Lokapriya said the sector has been able to cut costs as employees work from home, adding extra revenue. He also said the “renewal cycle” of introducing new products has been cut short from 7 years to 3-4 years—which will aid growth and expand revenue.

On Pharmaceuticals

Active pharmaceutical ingredient segment was the main revenue driver for Indian drugmakers but the sector will sustain and continue to do better with change in lifestyles as a result of the Covid-19 outbreak.

“It will take years for India's population to be vaccinated for the coronavirus and in the process—with chemicals, compounds and medical devices required—pharma (sector) is bound to do well for the next few years,” Lokapriya said.

Digital Economy

Lokapriya said developments like connecting to the cloud and cloud to enterprise creates multiple revenue streams for the sector. These developments weren't imagined before and paves the way for a revenue accelerator in the broader IT sector, he said.

Watch the full conversation here: