Reliance could be a good bet in this market: Deven Choksey, Investment Managers

In a chat with ET Now, Deven Choksey, MD, KR Choksey Investment Managers, believes the worst is over and for the next few quarters, could see improvement in profit performance of companies. Excepts

ET Now: What do you like on a long-term basis within the sugar pack?
Deven Choksey: Given the strength of individual companies, the preference would be staying with EID Parry largely because it has a relatively better balancesheet compared to others. At the same time, from the point of view of sugar refinery also, this company is relatively better placed. So, if investment is to he held for at least one year, EID Perry could be a better choice compared to others.

ET Now: Would you like to comment on the correlation between crude and equity? It has been a near perfect correlation this year, both the asset classes have been joined to the hip?

Deven Choksey: In the initial phase, funds which ended up incurring losses in investments in other asset classes, had to make good their losses by selling equity. Across the board, equity had to be sold also because currency depreciated significantly in the emerging markets. To my mind, crude, commodity and currency have already played out in the global market. Whatever we are experiencing now is a relatively smaller component which is probably affecting many of the funds. But if one has to believe that the crude, commodity and currency damage is over and the impact already factored in the equity in 2016, in a few months from now, you can expect some amount of stability in this particular pocket. This would in turn stabilise the equity markets. As of now, one would like to believe that countries which are consuming crude, like India, definitely benefitted and given the kind of positive impact it is creating in economic fundamentals like deficits and inflation, I would start believing that the companies in particular would start showing relatively better profit performance going forward. So though this particular correlation has played out, in the coming months, we are likely to see the benefits of it getting into the corporate balance-sheets. Already, some of the companies including paint industries have started showing marked improvement into the margins. At least for the next few quarters, you could be seeing healthy improvements in the profit performance of many companies.

ET Now: I know you have already spoken about it but do you believe the battered-down private banks offer a bang for a buck? There are three or four out there. Would you buy the larger ones, the likes of ICICI Bank, an Axis or would you buy the slightly smaller ones the likes of Federal Bank and a few others?

Deven Choksey: I would stay with the larger ones for the time being as they offer a margin of safety. Considerable amount of what you call valuations advantage is available into the banks in private sector where they have got a retail focus and where the credit growth is being maintained. Given the kind of discretionary spending which is improving and likely to improve further in coming period, this is one space which will not disappoint as far as earnings are concerned to the most of the banks and that is where the pure focussed banks like Kotak for that matter or pure focussed banks like IndusInd Bank or Yes Bank could be a relatively better choice going forward. Definitely, we like the companies like HDFC but they are relatively expensive. So I would like to buy some of the other ones. Kotak too remains in that particular league. We would like to buy into this kind of private sector banks which would give us a relative margin of safety and at the same time, a higher amount of credit growth prospects.

ET Now: Is TVS a preferred play or looking at the monthly sales numbers over the next 12 months, would you choose some other stock?

Deven Choksey: Well TVS has always been on a good volume side as far as growth is concerned. Unfortunately, part of the larger amount of shares in this particular volume comes from scooters where the margins are relatively lower. So comparatively, TVS ends up with a lower margin despite having volumes. From that perspective, I feel the company will have to keep on producing more to maintain profitability. Otherwise they may face serious challenge going forward because margins are not expanding. The other company in the two-wheeler space I like is Bajaj Auto which has a focus on the margins. In fact, in this particular quarter, larger part of the contribution comes from some of the high margin products including the new series of Avengers that they have launched. I would have such companies in the portfolio which are margin driven and not volume driven.

ET Now: What has gone wrong with JustDial? How can a stock fall more than 50 per cent in last one year? The stock has gone back to a two-year low. When it went public, everyone thought this was the next Google in making.

Deven Choksey: I am equally disappointed. They have probably lacked direction in the recent past and did not invest enough in building the large franchising network or the large merchandise network and as result, they have let down the entire business proposition. In this business, we all understand if you lose out on the initiatives for at least a few quarters or a couple of years, you are yielding space to your next competitor. I am not too sure about the corrective strategy because the management confidence was not seen while they were talking about reviving the entire strategy. We believe the management will have to come out with some better strategy going forward.

ET Now: A quick word here. Is there anything that excites you in the media pack? Eros is making a bit of a comeback but sporadically we are seeing a lot of these names finding favour. Do you like anything here? Do you have a favourable view anywhere?

Deven Choksey: The content space is really very exciting. The companies in content space we like include Saregama, Network 18, TV18 kind of companies which are definitely showing good amount of growth prospects going forward. We have conviction about Network 18, TV 18 and so we stick with these companies as far as investment outlook is concerned.

ET Now: I believe you would have a consensus with Hemang on Reliance. He is bullish on Reliance. I reckon you are bullish on Reliance as well?

Deven Choksey: Yes, this is one company which the market has not been owning enough. Once the Reliance Jio project is successfully rolled out, you would probably see reactions following up thereafter. I am relatively more comfortable with this company because the of margin of safety it offers under the valuation and given the prospect of Reliance Jio along with the other expanded capacities, I feel Reliance could be a good choice to bet into in this market.