6 IT and bank stocks one can bet on

The larger the size of the bank, better would be their ability to make money, says Deven Choksey.

We remain positive on IT, particularly the biggies like TCS, Infosys and HCL Tech and large banks like HDFC Bank, ICICI Bank and Kotak Bank, says Deven R Choksey, MD, KR Choksey Investment Managers.

There’s a little bit of concern with regards to that knock off on Wall Street and the UK’s announcement of a fresh lockdown. Do you see sentimental impact on the markets here?
This particular situation is always going to be volatile where the European countries are getting into lockdowns for a longer period, particularly in the UK. But India is doing far better as far as the pandemic situation is concerned. India would continue to attract money and during this particular situation, we might see some of the global traders pull out money, as a result of which the market may see some kind of a profit booking or a correction.

This correction would be a buying opportunity for those investors who have been waiting to add to their portfolios. I would say that any correction which comes will not be a very significant one and it may be a corrective phase as far as the prices are concerned. It would give opportunities to investors to buy on dips.

Do you feel that something more exciting is expected in the market?
We are seeing a good amount of traction in the FMCG space. Different companies under the different product lines have been showing distinct bullishness. The consumer segment is rapidly moving and one after another company is showing a distinct amount of promise including some of the food processing companies. From that perspective, I consider this space attractive.

Consumers have more money to spend and as the economy recovers, the consumer action drive would increase further. I think many of the FMCG companies would have better times going forward. FMCG companies would steadily grow between 12% and 15% in different verticals in the next few quarters. So, remain positive and maybe markets would correct and one would be able to buy afresh into select companies like Britannia and Nestle which are expensively traded. But these are driven by a good amount of growth potential.

What is your outlook on TCS?
The digital vertical is growing extremely well both for TCS as well as Infosys and even HCL Tech. From that perspective, you get relatively more confidence that in the current situation when the majority of the customers across the globe are basically spending on the digital drive, these companies are well positioned.

As the growth rate in the digital verticals stays about 25%, it is quite an encouraging number. It reminds me that in the ‘90s, the conventional model the companies would grow between 25% and 30%. Out here, in the digital space if they start growing at 25% and above it reassures the faith in continuing growth.

Also, the fact that in every quarter they have been targeting some of the large customers and that the numbers are increasing gives one a fairly good amount of visibility of up to three years and that says that 12% to 15% growth is distinctly available as far as the next two to three years outlook is concerned. We remain positive on IT, particularly the biggies like TCS, Infosys and HCL Tech.

On one side, there is this entire market positioning towards HDFC Bank or HDFC or Kotak which has seen market share gain. On the other side is the complete disregard for RBL or AU Small Finance Bank, Ujjivan and even IndusInd Bank. Will this polarised differential continue. In 2021, who will make more money? HDFC Bank or will RBL and others?
The larger the size of the bank, better would be their ability to make money. I think money acts as a raw material in this case and the larger the book size you have, you are in a much better position to fund some of the projects which basically want to get finance.

From that perspective, the likes of HDFC Bank would remain a strong contender in every situation. Secondly, these banks have been showing a good amount of resilience in lending in an adverse situation. They are very very measured in their approach when it comes to lending and they are not reckless. That gives more confidence to investors but the NPA related situation in these banks is handled far better than many other banks and these are the two reasons -- the size and better quality of management. It gives them a premium as far as the stock price is concerned.

These banks show the ability to compound at around 20% in the coming period despite being of a larger size which is giving me confidence that one should stay invested in these large banks like HDFC Bank, ICICI Bank and Kotak Bank.

Green shoots are emerging within the real estate and construction space. G given the kind of commentary that we have heard from HDFC for their Q3 individual loan disbursements, do you think it is going to translate into investments as well and would there be any Maharashtra specific real estate plays?
We are likely to see a larger amount of activity in both commercial as well as the residential real estate space. Larger players like Blackstone have started entering commercial real estate space, and REITs have started entering the markets with a large appetite to acquire the portfolios of some of the struggling companies. So that gives an opportunity. In residential real estate, with the demand for housing opening up big time, these two activities will continue.

However, I would suggest not to directly invest in real estate companies because they are becoming more construction companies and they would have some kind of seasonality factor into them. In order to have regular earnings coming in, I would like to stay with housing finance companies as a proxy to buy into the real estate. HFCs could probably generate 20% plus kind of a lending in the next three to five years on a cumulative basis. Should that be the reality, then one would be buying a much steadier business vis-à-vis buying the seasonality effect of real estate.

From that perspective, I would prefer good quality HFCs considering the real estate space is looking better than ever before.




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