Accumulate Bharti, TaMo a contra bet: Choksey | Economic Times

Even though corrections would be sharper and volatility would be there, markets would try to recover after every fall, says Managing Director, KR Choksey Investment Managers. It was pretty much a washout across the board yesterday and then we had those GDP numbers coming through. What is the mood of the market?The mood remains quite cautious. Yesterday’s fall did not come out of the blue. People were expecting that whenever there was a correction, it would be sharp. Yesterday’s correction was probably combined with many factors. One among them was, of course, the India-China border faceoff once again. But more importantly, the index weight management which is happening with MSCI and FTSE is also possibly resulting in the selloff coming in from the global traders side. In my view, the markets have probably run up in a hurry. There will be elements of corrections coming in every now and then. One will have to be prepared for it. I am not seeing anything fundamentally changing per se on a negative side. On the contrary, as I hear company commentaries, I find that most of the companies are echoing a larger amount of confidence going forward from the perspective of looking at Q2 at this juncture and subsequently post festive season Q3 and Q4. I would rather like to believe that probably the worst is behind the economy and things could only improve from current levels. The market should probably take a cue from there and even though correction would be sharper and volatility would be there, markets would try to recover after every fall. In this fall, will you buy the leaders like IT, pharma or you will go back to banks? Definitely the opportunity would be across sectors. One would find opportunities in some of the select pharma companies too in the corrective downside that we are seeing. Of course, IT remains steadier at this particular point of time and one could possibly argue for buying into those companies also because of the fact they are relatively less volatile comparatively into this particular market. The banks remain in an interesting position at this point of time. As more and more funding enters into the system and more and more companies find their way out of NCLT, I would rather like to believe that some of the banks would have relatively better time going forward and with the festive season picking up, those banks and NBFCs which carefully lend at this particular point of time would have a better opportunity to lend in the subsequent period because they have preserved their balance sheet. From that perspective, select private sector banks would be the right choice to get into in the corrective downside. The star yesterday was ONGC. There was unexpected strength on a day when every other sector and every major high flyer was getting smoked. Should we read anything into yesterday’s price action in ONGC?One can probably look at two things. I have not looked at all the data on the derivative side but the current level of operation suggests that there may be an element of short covering cum long building. The reason probably could be that oil prices could possibly harden and in September-October period, I would not be surprised if oil prices stay in the vicinity of around $50 to a barrel. So from the perspective of looking at crude oil prices and the relation with ONGC, I would rather like to see the stock prices recovering on technical ground as well as news on the fundamental side. After the FTSE as well as MSCI adjustments, a lot of selling has happened in Bharti. Do you think a) this is a long bull run stock and do you think B) these dips are a good time to buy into Bharti?Well yes. On one side, I would like to believe that having Bharti along with Jio being in the leadership position, the rest of the two in the space are probably nowhere closer now. From that perspective, if you had to look at both Jio and Bharti, I would register a case as far as the industry players are concerned. Jio with probably a much larger ecosystem to operate in and much better play on the data compared to Bharti would be definitely a preferred choice. But the point here would be that selectively Bharti would also start building its franchises and it could probably take two-three years. But the fact is that slowly and gradually, with the pricing power improving, they would have a relatively better time. Adjusted gross revenue (AGR) dues is an overhang. But as I see, the investors are willing to fund this proposition as far as AGR outcome is concerned. From that perspective, the negative may not be seen as much as it probably is feared at this point of time. Let us keep a watch but yes the downside seems to be over. Maybe accumulation at the current level would be a right choice to do. Do you think the Mumbai based realty names could see some meaningful move now that the stamp duty has been slashed by 3%?Among the real estate companies, I find Godrej is one of the better players as far as their balance sheet size is concerned. And also the fact that they have the ability to comply with various requirements of the regulators and RERA. From that perspective, it is the preferred choice for buyers and they stand to benefit because of the buying interest returning to real estate. So that is the first point. Would the entire Mumbai market change completely in favour of buying real estate? The answer is still no. There is still a long way to go before that, but yes, those who have relatively better inventory, hold a slightly better position. There are two reasons for that; one of course is that the buyer has an appetite to go for quality properties and more importantly the cost of money is coming down for the buyer. As a result, we are basically seeing some amount of buying action happening at a lower price. Along with that, the fall in the stamp duty is always an attraction for the buyer to come up. All in all, put together the company which has got a better ability to sell their properties could be the ones which get relatively better attention in this particular journey. Godrej would definitely be counted as number one in that particular space. What is your view on Tata Motors? The commercial vehicles segment is sounding a little bit more assuring now than ever before. There has been a pickup in demand for the commercial vehicle players and particularly from the medium and smaller commercial vehicles. That demand is already picking up. If we see sustainability in the economic recovery in the second quarter and thereafter the third quarter, my take would be it would be a better time when you would be seeing that pickup in the demand coming in also from the larger commercial, heavy commercial vehicle segment. That is one segment which till now has dragged down companies like Tata Motors and Ashok Leyland. It has now started favouring them as far as the outlook is concerned. As far as the JLR and the passenger car vehicle portfolio is concerned, the outlook is still not absolutely clear but there is a good amount of clarity coming in from the management that they are bringing down debt as far as the company is concerned in the next two-three years’ time. That is a very interesting proposition coming and at the same time, in the domestic market, the passenger vehicle portfolio is showing some signs of improvement. All in all, put together we may not be seeing too much of a downside. It is at a stressed valuation on which the investors would be taking a contra bet in a company like Tata Motors as the valuation could come to a reasonable level within the next two or three quarters. Are you still bullish on some of those cement names?We are distinctively positive about cement as a space for a couple of reasons; one the government is quite determined about rolling out various projects post monsoon and that is where we are seeing a lot of activities going on at this point of time. If they intend to roll out many projects and the construction has to begin, then infrastructure would be one space from where cement would find a major buyer. That is one positive thing. Secondly, given the kind of direction that has been set on the real estate side, on the housing side and also particularly in commercial real estate, we have been seeing the entry of some of the foreign players who are going in for further investment. So my take is that yes, whatever be the last six months saga, as far as real estate activity goes, I believe going forward both the housing and the commercial real estate would regulate the improvements in the scenario. From that perspective too, cement looks interesting. So, both infrastructure and housing and commercial real estate put together could possibly result in better demand as far as cement is concerned. Maybe select companies will have to be looked at where the capacity is larger and is on a pan India basis. At the same time, some of the companies which are stronger in a regional space, may be slightly better off post September. One should keep a positive eye as far as the cement outlook is concerned going forward. How are you looking at L&T this morning particularly as we track the reaction post the Schneider deal?I would probably welcome this particular deal for two reasons once again; I think the important part is that L&T’s core focus stays in engineering procurement (EPC) businesses which is a much larger business as far we are concerned. Plus, the focus also stays on the defence business where they have got a larger portfolio in making. In my view, in areas where they are not making enough margin and profits, it makes sense for them to consolidate. This Rs 14,000-crore worth of cash deal is definitely going to help L&T as far as the balance sheet is concerned and I would like to believe that this is a very positive deal from that point of view. I would rather like to see that companies like L&T slowly and gradually start finding their way into the portfolio of the investors. I guess the things are probably setting right. Larger projects are getting rolled out. Probably, companies like L&T would be in a much better position to win some of these contracts and one could remain relatively more positive in case of L&T now.