The market is rallying because of flow of money which has come into our markets since February this year, availability of stocks that have corrected and likelihood of NDA government coming back to power, said Deven R Choksey, MD, KR Choksey Investment Managers, in an interview with ETNOW.
Sterlite Tech has seen a complete rundown on the stock. A Rs 400-stock has become sub Rs 200?
Yes, sometimes there are hurried reactions. Many of the analysts probably thought that Sterlite Technology would be affected maximum because of the commodity issues related to the fibre optics. However, I think, very few realises the fact that their order books are filled up for the next three years. The value is already determined. At the same time, they do value addition. As a result, their profit margins are relatively better compared to the commodity fibre.
Unfortunately, the research report gets circulated into the market and the reactions happen in the marketplace. One could argue for adding the stock back into the portfolio though it experienced a very sharp volatility from Rs 400 to Rs 200. The earlier period of the volatility was contributed largely by the shares pledged by the promoters. Today the volatility is contributed to the view on the optic fibre commodity. As a result, the stock price had a run down.
In my view, fundamentals remain intact and for the next two to three years, the visibility of Rs 10,000 crore worth of execution stays on. Certainly it is a buy opportunity at lower levels. Close to Rs 200, it is an attractive one. Below that, it would be even better.
Before we get excited and think that all is going well for Indian markets, I would say what’s the big deal! Dow has done 50% better than us.
Certainly. Our markets have a role to play particularly after the sharp correction that we have seen last year due to the sort of problems that we have faced with some of the typical issues like loan against shares, the pledged shares and also NBFC-related issues which were largely confined to our own markets.
Of course, the market had to have corrections and the valuations got moderated. Subsequent to that, the additional fund flow started from February 2019 and till date it continues. That is the reason for which our markets have started correcting back into the better valuations. I do not think that the fundamentals of our companies and the economy have changed beyond a point.The economy shows distinct signs of improvement but the fact remains that the results of the companies are by and large on predicted lines.
It is largely to do with the few positive factors. One of them is the flow of money which has come into our markets since February this year. Second important thing is that the availability of stocks that have moderated valuations. Third, it looks like the current government is likely to come back to power and that is where the continuity factor which the market wants is being understood.
These are three of the major reasons for which I think we are seeing the rally in the market. Along with that, we are also seeing stable crude oil prices and better fiscal discipline leading to lower rates and lower inflation. All in all, put together, it is bringing confidence back into the market and that is where we are. Whether we will scale up the new levels immediately before the elections or after the election is anybody’s guess, but the stock specific market continues to hold lot of promises.
Is Metropolis something that intrigues you?
From the business point of view, I think anybody who is in the business of acquiring customers should be looked into. Here is one particular area of business, where you are accessing the customer in a different manner. Where exactly you would utilise and cross sell that is something which one will have to figure it out but from the perspective of a core business, they are probably going with a larger amount of strength and the franchises.
There is a good amount of continuity in this particular activity where healthcare remains the prime focus for most of the citizens. As far as business is concerned, growth would appear less cyclical in nature.
What is your view on Polycab?
Looking at its peers within the space — Havells, Finolex etc — the company got listed at an offer price where there is a little bit of headroom compared to what their peers are quoting at. Whether it should immediately translate into the price action on the same day or in a few days, I would leave it to the market to determine. My own take is that yes they have a role to play largely because few players are there and they are commanding the premium.
Polycab has been showing a reasonably high amount of growth in the last two to three years both consistently at the top line and maybe on the bottom line at a relatively higher level compared to its peers. From that perspective, money should be allocated to this particular stock. Quite possibly, post listing, you might see a little bit of follow-up action where they may want to fill up the portfolio with the gaps that they may have. I see a possibility on positive side as far as the stock is concerned.
What is your view on Tata Motors?
I do agree with the fundamentals of the company. They were always there and they continue to be there. Passenger vehicle portfolio is performing reasonably well. Commercial vehicle portfolio has a better prospects as well. However, there are pertinent questions pertaining to who is buying Tata Motors.
My own sense is that two players are basically accumulating the stocks. On one side, it is a group which basically through their holding company is buying the stock at lower levels. The situation cannot be as bad as was projected in the last quarter result. That probably is the reason for which at lower levels, their accumulation process started.
The second player who is accumulating the stock and which in my understanding are the ETFs who are putting money on a contra buy basis, ahead of elections. Stocks would differ from one to another from a given point of time. The allocation of money is happening from their side too and that is the reason for which we are seeing the stock price going up.
I still maintain that the fundamentals of Tata Motors are likely to improve going forward also because the commercial vehicle portfolio is likely to show relatively better performance from 1920 onwards and that is where one could possibly argue for volume as well as value-related growth coming in. We remain positive on this stock for some time now and the market is rewarding it at this point of time.
Would you readjust the mix of themes in your portfolio?
We are careful about the selection of stocks in our portfolio. We believe that the consumption story will continue to position well and that is where I think the companies which are likely to be part of discretionary, non-discretionary space of consumption, would be our choice. We continue to put our bet on few of the areas where we feel largely more comfortable.
We feel insurance is going to be a financial product which should be consumed well going forward. That is one area where we feel more comfortable. Some of the corporate banks with their portfolio on the credit lending side particularly the likes of Kotak are ripe for some kind of monetisation of the verticals that they have built. So for next two years, we feel the company would take advantage of financialisation of the verticals that they have built. So this is one area.
We also believe that the commercial vehicle in particular and exceptions like Bajaj Auto within the two wheeler space, three wheeler space would continue to perform well in the portfolios, likes of Ashok Leyland, likes of Tata Motors are the ones where we are relatively more convinced from the investment point of view.
Our approach would be pure stock specific. Though we will keep the direction, but at the same time our approach will be selecting individual stocks in the portfolio vis-à-vis buying the cyclicals. I think we would stay with growth and the value stories.