Deven Choksey’s 5 top bets in insurance, CV and capital goods

Deven Choksey-1200

On one side, there is a hope that things will settle down for Jet very soon and that could mean that the lenders would find the new investors into the company and I think things would probably turn around very quickly. That is one side of the story which is already in the minds of the people.

The other side of the story is that it is not going to be an easy task at all, even though you have all the equipped aircraft and other things. Still it would take a longer time for anybody to come and turn around the business of the company. Given that kind of a situation, you probably do not have enough clarity and without clarity, if you are trading, there is a 50% chance to be right.

In my view, since there is no demerging hit list at this point of time, I would probably stay away from it and allow things to be clearly spelt out. After that, if the stock is available a little expensive and if the merits so demand, one can look at it thereafter. But it is time to play safe. I do not think I would go into any particular company with the current clarity. I do not think it is enough for me to take any kind of a long investment decisions in this company.

For the first time in the history of Indian banking or Indian corporate sector, a lender (SBI) has managed to flex muscles and forced an existing promoter to give their rights and privilege away. Would SBI and other Indian lenders in specific cases have more commanding power after the 12th February circular?

Yes, absolutely. This is a very positive sign even though there are still some procedural aspects which are delaying the subject. But nonetheless, for the first time it is happening and this is a warning signal to promoters who were basically playing around with the systems.

On the other side, the banks probably would demand really a good look because given the kind of availability under this provision, the banks would be in a much better position to recover their lending. The money which they have lent to borrowers would be in a much better situation. So, as a directional call, though I am positive, I can’t say whether it could immediately mean anything good for companies like SBI and other lenders.

What is happening to Sterlite Tech? The stock has come down by nearly 50%.

It is very clear that China development is affecting the view which people or the analyst carries on this particular company. Even though there has been enough clarifications from the management, their business is more driven by the solutions-based approach, which they provide in the networking. As a result, the entire fibre optic, fibre optic cable business is basically taking that piggyback right now on the contracts that they are winning on the networking.

From that perspective, their margins are not going to be as badly affected as the commodity fibre optic cables are getting affected in China. People probably still think that Sterlite Tech is more of a commodity play vis-à-vis the telecommunication play driven by networking. From that perspective, the view is little bit negative.

It is a little surprising though at this point of time because the stock has been quoting at a slight premium but we have been producing good numbers and going forward, that premium is justified. From an investment perspective, I still believe that business condition is quite okay. I do not think that China and one of kind of a contract value should affect the major contract for Sterlite. They already won the contract for next three years and those contracts are going to maintain the margins.

From that perspective, I do not think that there is a scope for further downside as far as the stock price is concerned. But maybe, the market has a mind of its own. May be, the stock has technically corrected but this could be a buying opportunity for good investors who have not yet bought it. I see the fundamentals remaining intact as far as the stock is concerned.

How are you looking at PFC, REC stocks? While the management is very gung-ho, analysts are a little bit cautious when it comes to credit rating, capital adequacy etc. Is there some merit going forward?

I would like to believe that the consolidation should help in making the size bigger and they should be in a much better position than before as individual companies. However, I still have a little bit of clarity on the major aspects of it, as to how these companies are going to merge. The companies are going to be completely different from the two individual companies which we have been operating. Whether there is going to be a complete management relook that there is going to be a complete work on the kind of non-performing assets that the companies, particularly RAC has created. I am not too sure how exactly it is going to get cleared.

In government-owned companies, particularly if it is run by professionals, the decision-making areas are not very clear. They remain grey areas and from that perspective, I do not carry that confidence but otherwise on standalone merits, the merged entity should ultimately reflect relatively better performance going forward. We will have to wait and see for the validation of this particular view if it emerges hereafter.

What are your top bets?

We continue to like insurances businesses and we continue to accumulate. We have been talking for some time now. The life insurance business is recording 20-25% kind of a new premium growth. We like companies like HDFC Life or Bajaj Life Insurance. Those companies are in our radar from investment perspective.

In commercial vehicle segment, the demand for 19-20 is going to be in place starting next month. You are going to see the BS VI norms getting implemented. The additional demand for commercial vehicles is going to be in place. Our choice has been with Ashok Leyland and Tata Motors commercial vehicle portfolio. We have been liking other businesses too.

In the capital goods segment, the order book is increasing and that is where we like the models of ABB Cements where we see the fundamentals turning very strong for these companies. They are traded slightly expensive but they are good to pick up at least from a two-year view point, as are select banks corporate banks.