India was supposed to be the best performing place where people wanted to invest money? But if I look at the performance this year, Japan is up 12%, Nasdaq is up 8% and all the gains for largecap stocks, even Nifty are gone. Why is that? What has turned and why are the markets suddenly looking very shaky?
Chakri Lokapriya: I think it probably started off with the regulator concerns and that fear percolated down and investors lost about Rs 6 lakh crore in the last week or so or a couple of weeks. That fear is going to linger on for some more time and therefore put a lid on the upmove. One of the things that a market needs is confidence, which it is lacking right now. But because the earnings are on an uptick, the market will be fine.

So are you a buyer in this market?
Chakri Lokapriya: Yes, indeed. We have been buying. In fact, power financiers are like an instant gratification story. You will see the benefit immediately as soon as they lend out to various infrastructure plus power sectors and so Power Finance, REC, we have been buying. We have also been buying into auto ancillaries like Timken, Schaeffler. They will all benefit from the EV story, Tesla coming in and plus underlying earnings momentum.

Why are FMCG stocks coming under pressure? Is there a reason why FMCG stocks, which are supposed to be the defensive space, are under pressure?
Chakri Lokapriya: If you look at FMCG stocks, within the whole basket, for example, Dabur, what has done well is only the premium end of their products and whereas the mass segment continues to kind of underperform in terms of sales and there is no pricing power that any of these companies are having right now and that they are just thankful that some amount of raw material costs has kind of helped in their margins. Against this whole backdrop of rural being weak, no real big uptake in the range of products and the consumption is generally slow, we have seen that across consumer segments and valuations are high. A combination of high valuations plus no new product innovation will keep this sector where it is.

What is your take on the ER&D services? Some of the top bets that brokerages are talking about include the likes of KPIT, Tata Elxsi, Cyient? How would you be looking at your preferences within the space?
Chakri Lokapriya: That segment continues to do well. The conversion of order flow into revenues still continues to be very strong and that is the big difference between them and the IT services where the order flow is there, but it is not able to convert it into revenue. Given that and given that manufacturing is on an upswing, they will continue to benefit from the whole process and their margins will continue to expand. They will have that slight bit of premium valuation given their focus.

OMCs have been in the spotlight of late with the fuel price hike. What is the outlook on the entire OMC basket?
Chakri Lokapriya: In the case of OMCs, the story has shifted to post election when prices may or may not be cut if oil prices move higher. So that is the biggest unknown. Given this level of uncertainty which always exists in this sector, I would stay away. The valuations have always been cheap and continue to be cheap. But given the uncertainty, I would stay away because the crude discount that they have been enjoying from the Russian crude last year might not continue to next year. GRMs at high will, cannot be at that cyclical high levels will have to come down and plus the uncertainty, combination of these three will stay away on the sidelines.Why? I mean, this is like a high growth space where valuations are stretched. If markets are correcting because of valuations, this should be the first one to correct.
Chakri Lokapriya: If you look at, for instance, Zomato, they are now talking about Blinkit being the next value creator in that space and I think that is the nature of the game in the consumer tech and the new tech space. Unlike the past, when these companies only had a product focus, now there is an Ola getting into EV cars. You would have said a few years ago that is completely unrelated. but now they are doing it. So, as companies in new tech get into completely different spaces which are still tech related, but very different, valuations are being given to them So the keyword comes down to just one word which is if each of these companies continue to innovate whether it is new segments or related segments, you will keep giving valuation to them in some form.

What is your take on Eicher Motors, given that analysts are saying that the risk reward is looking rather compelling for the company?
Chakri Lokapriya: Eicher Motors can be compared with Asian Paints. Asian Paints used to be the sole company out there, premium paints, no competition and suddenly there are a lot of new entrants and lots of competitions, margins coming down. It’s the same story with Eicher Motors now with Triumph coming in, Harley-Davidson coming in, duty structures coming down for those imported bikes. This means the consumer has more choice, which means lower margins for Eicher. Therefore the multiples will come down. The valuation that one gave it two years ago, it would not get now and therefore we will remain on the sidelines.

We are looking at pickup in overall digitisation, AI, etc. Do you think that a lot of these traditional IT companies are now harnessing the power of the new-age technology in a lucrative manner or is there still a lot of catch-up to do and in light of that, how are you looking at some of the listed players, even new-age tech?
Chakri Lokapriya: New-age tech is evolving because it impacts just about every single sector out there. We had a presentation by one of the tea estate companies, which was looking at automating some of the workforce and replacing them with an AI-enabled robots, both the good thing and bad thing, it creates unemployment, it improves margins for the company and in 30% of all kinds of jobs in IT companies, AI will replace humans in IT companies, says a McKinsey study. If that is true, then in the next three, four, five years or so, Indian IT company margins can dramatically change depending on how they are able to seize upon managing this mix between AI and employees and retraining. It is something which is going to impact just about everybody. The question is, who embraces it more than the other?