Deven Choksey, MD, KR Choksey Investment Managers, discusses Eicher, Tech Mahindra, HDFC as well as PSU banks and metals stocks with ET Now. 65196000 65208105 65193484 Edited excerpts: What would Harley Davidson coming to India mean for Eicher? Harley is in a completely different segment. They are in a high range of motorcycles and a higher segment of the market. That is definitely going to work in favour of companies which are in India. If we study the pattern of how Bajaj Auto has systematically built in KTM into their portfolio, it suggests that on one side, they took advantage of strong engineering and used the brand KTM for distribution purpose.Harley probably brings in a similar kind of an equation wherein the cost of manufacturing is brought down to the level at which the world or Indian markets can afford them. So, certainly it would be an interesting play. I do not see too much of a problem but at the same time, you can argue that there would be a pressure on the margin for likes of Eicher who have been commanding around 30% margin. One will have to see how they react on the pricing front.After Tech Mahindra’s earnings, how are you positioning your preference within the IT pack? I am going with the assumption that TCS would still be your top pick but other than that, is it the right climate to initiate calls among the largecaps within the space? TCS gives us a distinct clarity. They have the visibility of long-term contracts which they have been signing every quarter. So, there is a visibility of revenue from their conventional model. The way in which the shift is taking place to the digital model is giving a conviction that somewhere down the line, inorganic growth would be a reality in case of TCS and even for Infosys. Tech Mahindra has already shown the desire for inorganic growth. From that perspective, TCS would still rank better compared to the others. We will continue to hold on to the positions that we have in TCS. The important part in the IT would be the growth because TCS, Infosys, Tech Mahindra kind of companies may end up producing 10% to 20% price appreciation, subject to price at which you enter in a given year. Only if you entered in a corrective downside, you will have the opportunity to earn between 15% and 20%. Otherwise, the outlook is 10-15% appreciation in these three companies.But in midcap IT companies like Tata Elxsi, we find there is an opportunity to make 25% CAGR from this business given the kind of a growth programme that the three IT largecaps are continuing within each of the verticals in which they are operating. All said and done, I would prefer to stay with some of the good quality midcap IT companies like Tata Elxsi and KPIT where we have relatively larger amount of clarity about the growth going forward.Bank of Baroda (BoB) has in a sense, rerated the entire PSB sector. Are you hopeful that after an Indian Bank and BoB, we could see similar performances from some of the other PSU banks as well? Or should the list stop at SBI after BoB? Let us also accept the fact that due to the lower pressure of providing for the non-performing assets, PSBs are now showing relatively better performance in the quarterly results. With the NCLT programmes continuing, they are auctioning the assets and getting money back into the books. It is positive only, going forward as well. As the downside in the PSB has been kept limited, the upside in PSB would depend a lot on the basis of earnings outlook with the produce from lending.Currently, that is an area where most of the analysts are not as confident as they would have been otherwise. The PSU banks are passing through a restructuring programme in their operations including for lending and other activities. I am not too sure whether you would have an equal amount of credit growth which some of the private sector or the corporate banks are registering as of now. But, valuation wise, these PSBs have become attractive. Downside is limited and any kind of positive news could result in upside in stock prices and that is where the traders delight as they function in a market where positive news would drag the stock price up while the fundamentals take time to catch up. It would be a buy in dips strategy for PSBs at this point of time.Vedanta is going to come out with earnings. Last week, the Aleris buy by Novelis helped lift sentiment on Hindalco. The three metals majors -- Tata Steel, Vedanta as well as Hindalco -- come on the back of a two-year mega bull run in commodities. Does that continue? Certainly the white metals as well as the ferrous metal would continue to have volume-led growth in the economy. All these companies fortunately do not carry even the inventory for few days in their godown. This means the offtake is much faster than one would have imagined in the past. Because of the global market conditions including China factor where they have switched over to the electric car furnaces in steel, the prices of steel have remained stable comparatively. As a result, realisation is better. So, on one side, you have a high demand scenario and on other side, realisation is better. Crude oil price is increasing and that is having the impact but at the same time you have much favourable delta on the pricing front vis-à-vis the cost. That is giving opportunity for white metal as well as the ferrous companies and that is an area where the demand scenario along with the profit margins, would probably drive the stock prices. Any corrections would be meaningful. This is not generalisation. There would be a correction in respective companies from time to time. But that would be a meaningful way to look into the commodity players like the metal companies and buy them into portfolio during downside. We believe that two-three years of upcycle in metal is a given. If the scenario is buoyant, you should make money in the upcycle in the commodity space.Why would anybody in their right mind vote against Deepak Parekh? The large wealth which has been created for HDFC shareholder is because of the way the checks and balances and the corporate ethos of HDFC Ltd. and HDFC Bank has evolved in last 30 years. Now, 22%, nearly one-fourth of the total shareholders, do not want him as the Chairman anymore?Generally, as an entrepreneur, promoter and a prudent manager of the finance business, you ultimately end up managing the risk well. That is what Deepak Parekh’s USP has been. He has been managing his risks so very well that we have seen some of the best institutions coming out of the HDFC group. Today there are investors in the company who are not necessarily looking at the risk in a same manner in which he has been looking at it. They probably want to accelerate the pace of growth in various businesses in which they are operating. They are trying to position themselves more aggressively.Ever since I have started learning how to read corporate annual accounts, I have seen HDFC remaining the most prudent company in management of risks. I am more convinced that the style of working is far more superior than one would have asked for but yes some part of investors have been demanding a aggressive path and that is where the discontent is. I have not talked to any investor honestly but this could be the reason for which there may be some kind of a negative voting against Parekh.
from The Economic Times https://ift.tt/2LQ2yAJ
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