Why Chakri Lokapriya would avoid ITC, HUL | Economic Times

Chakri Lokapriya, CIO & MD, TCG AMC says he funds HUL too expensive and wouldn't want to nibble there. What is triggering the sell off is it global, is it local, is it lack of triggers what has really moved this market so sharply on the downside?It is a combination of both the yields moving higher, post the Fed meeting on Wednesday, But one of the lessons that we have learnt over the years is not to fight the Fed because they have said that they are not going to increase rates for the next two years until 2024. They are going to support growth and the yields are still only 1.6-1.7%. While the GDP growth for the global is growing fast, for the US to grow at 6% is a phenomenal number and from an Indian perspective, the yields are likely to move to the 6.5% range but credit growth is set to improve to 6%. We are reflecting what is happening around the globe but it is more about taking some money off the table rather than anything long term. The outlook for ITC is that profitability will return to the cigarette business. In case of HUL, the stock is lagging but the cost inflation is being passed on in a very calibrated manner. Which is the one that you would tilt toward?ITC is a value trap. It is an expensive company with solid businesses. The cigarette business has a very high gross margin. But there is uncertainty over taxes on the cigarette business which has funded the FMCG business. They will divest both the businesses and separate them out at some point. SUUTI owns a big stake and there are enough uncertainties because if they do split into two companies, then all the fund that was going from the cigarette business to the FMCG business or even the hotel business will stop and then the cost of capital for those businesses will go up. So given the uncertainty of how they will do this and also the SUUTI sales, I would stay away from ITC. As far as Hindustan Lever, rural is doing well and that should provide support for the stock. The stock is a fairly expensive stock. It reflects stable growth. I would not really nibble on that either.