Why Deven Choksey is betting on insurance and auto stocks
We are selective buyers and any correction or fall allows us to buy further, says Choksey.
Where do you see Yes Bank headed and do you think the gap down today could be bought or would you completely avoid it after last quarter’s performance?
They have reported nearly nine times the loss that they had in the last year same quarter, for non-performing assets this time. One would like to believe that this is a cleanup of balance sheet which they are doing and that could probably be a good move. But whether it is a complete cleanup or whether something else is pending or if the quality of the paper in the books are a little weak -- one is not too sure where further shock is likely to come from.
We would expect clarity coming from the management about the quality of the paper that they are holding in the books and where exactly they would be having problem going forward, if at all. Should that happen, then probably any dip can be bought. But frankly, I would like to see the clarity coming out first, before taking any buy call at this point of time.
Should one get out of the Yes Bank stock?
It is a million dollar question. I would like to see clarity coming from the management before taking any call on this particular subject. At this point of time, given the fact that it is opening gap down, it makes sense to allow it to probably do what it should do in the market and not acting panic.
Some clarity coming out from the management could help stabilise the stock price. I for one would like to believe that this is a cleanup act. Should that be the situation, if they have provided maximum in this quarter, then probably the market would have a sigh of relief and stabilise.
The ADA Reliance Group of companies have defaulted on their loan obligations. As a result, debt agencies have downgraded their loans. Is this a tell-tell sign that more problem is coming? First it was IL&FS, then Essel Group and now ADA Group of names.
It is painful. Entire journey is appearing quite painful. I totally agree with it. None of the names which are anticipated or expected are coming on the surface and probably they are creating big amount of uncertainty in the minds of investors. The ADAG Group is passing through a very rough time and I do not know how things are going to pan out hereafter. Honestly, we do not have coverage on these companies and neither do we have any recommendations to make on these companies.
We are expecting a stable quarter from Kotak. What is your view when it comes to those numbers and what you are watching out for?
In case of Kotak, we certainly believe that given the kind of portfolio provision that they have created for the revenue book, where more than 50% of the income is accounted from the transaction-base activities, that gives a reasonably good amount of surety that you have a relatively stable revenue book compared to others.
At the same time, they are having different verticals in their portfolios which are growing very smartly, very systematically and the management is having a high level of prudence on managing the different portfolios. From that perspective, one can always look for monetisation of some of the verticals eventually, wherein the AMC, insurance or for that matter NBFC verticals will have opportunity to be monetised going forward.
Kotak sits on big upside prospects where the financialisation of these verticals could possibly result in higher level of earnings growth or investors who are holding these shares in their portfolio. In my view point, one should hold on to this investment and review the results and then probably arrive at the analysis on the other aspects.
Would you agree that the market is getting a little toppish as we are in the middle of elections or would you say that there is much volatility in store in the run up to May 23rd?
We probably have less headroom in many stocks as far as the upside is concerned, Many of them have run up ahead of time and that is one area where one is very careful about buying into the company. Having said that, in the entire baskets of Nifty and some of the largecap stocks, if the market does give an opportunity at lower levels, the buying will come in.
I do not think that any story which is looking good today is going to turn bad completely if the stock price falls due to some kind of corrections.
In the given situation, one will have to keep the focus on individual companies. Whenever you see a good quality stock having a larger than required fall, that could become a buying opportunity in this volatile market. During the election period of more than a month, we will have this particular situation continuing wherein sporadic rises and falls in between would give you the opportunity on either side of the market.
The market sentiment definitely seems to be a little different from what we saw last week. What else will you be watching out for?
We have had a very truncated month of April. This week is also going to be very truncated for the market. We do not expect too much of volume boost coming in this market at this point of time. We find individual merits in some of the insurance companies which have come out as expected with a good set of numbers. We continue to like HDFC Life, SBI Life and Bajaj Allianz Life businesses, which remain favourable picks for us in the market. Any correction, downturn is definitely a good opportunity for us.
Some of the corporate banks where we remain fairly comfortable includes names like Kotak, HDFC and ICICI where we feel that the fundamentals are right in place along with the business models and we are comfortable with that. We feel comfortable buying into some of the auto names, at lower levels because that gives you an opportunity, the downside is relatively limited and many positives are emerging including many of the midcap companies where we feel a correction in price could be a buying opportunity. We are selective buyers and any correction or fall definitely allows us to buy further.
Even with Hero, we do not have much expectations. The outlook is looking positive going forward from here and we are seeing this across the board in auto. What would be your strategy in auto going forward?
The confidence is high in a couple of companies within the entire auto baskets. For example, Bajaj Auto remains a confident buy, because of the fact that their strategy of penetrating the entry level market and cornering the market share is really a smart strategy.
For Bajaj Auto, a boost comes from the export market and that is where the company is very well positioned. The new launches and those in the pipeline are giving them a reasonable amount of visibility about. So, we like Bajaj Auto within the two-wheeler space compared to Hero with TVS remaining a very distinct play as far as the investment goes in this company.
On the other hand, the commercial vehicle segment is largely driven by Ashok Leyland and Tata Motors. We feel reasonably confident that this area will continue to do well and is likely to do better in FY19-20 given the fact that the scrappage policy and the BS-VI will have its own positive influence on both these companies.
In passenger vehicles, the pains continue. The volumes are not picking up. We are obviously not very clear about how to read the passenger vehicles for the time being and Maruti. We would like to focus on a couple of names in two-wheelers as well as commercial vehicles. That is where we would be more comfortable focusing on individual stocks.