Not time for all-out buying; be selective: Choksey

“Go for selective buying. Look for companies which are fundamentally rock solid with favourable business conditions. One among them would be though it has come down from the highs. Corrections have been overdone in frontline IT companies including , . These two companies remain rock solid as far as their approach in the business and their ability to deliver solutions are concerned. Plus, one could add the twins to the portfolio,” says Deven Choksey, MD, KRChoksey Holdings Pvt. Ltd

How are you reading the selloff in the broader markets? Is that a good entry point or are you waiting for some more pain?

The market has corrected significantly. In many of the individual stocks and the front line stocks, the correction is as high as 30%. Some of the midcap and smallcap companies have corrected 50-100%. With the price correction, one is tempted to buy into the market, however, when one looks at the valuations along with the growth that these companies would be producing in the current financial year, we will probably have to wait for some more time before buying full-fledgedly into this market.

Having said that, in some of the businesses, the correction may be overdone. The valuations have also become attractive and that is where one will have to gradually start buying into the stocks. That could include some of the IT companies, some banks and NBFCs, particularly in housing finance. It could also include some of the auto ancillaries where the situations is not looking so bad as far as I think the growth outlook is concerned. In the current price correction, given the nervousness in the market, if they are available at attractive valuations, there could be opportunities to look or consider them into the portfolio. So selective buying and not full-fledged buying and maybe a gradual accumulation would be the approach thereafter.

Give us three stocks where you have seen heavy selloff and which offer an attractive buying opportunity?

The ideas which I would put across from the investment point of view would be companies which are looking fundamentally rock solid with favourable business conditions. One among them would be Reliance. It has remained relatively steady in this market though it has come down from the highs. But the company could probably see one of its best quarters in the June ended quarter this time because of a significantly large amount of contribution coming in also from the refining business where they have got one of the best margins ever. So, that is one company which looks attractive enough for buying into the portfolio.

Also Reliance offers the possibility of a value unlocking. Its consumer businesses – both retail as well as Jio platform – may find some kind of traction going forward if the company makes an announcement in due course of time about value unlocking in these businesses via separate listings or giving shares to the investors.

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The second area where I believe corrections have been overdone would include some of the frontline IT companies including TCS, Infosys. TCS has a price closer to Rs 3,000. Infosys similarly would be lower than Rs 1,500. These two companies remain rock solid as far as their approach in the business and their ability to deliver solutions are concerned.

There are a couple of names within the banking and finance space including the HDFC twins which would probably remain relatively more favourable at this point for adding to the portfolio.

What is your take on the complete meltdown within the metals stocks across the board? Indian metal stocks have seen far worse rout than what we have witnessed across the globe this morning. JP Morgan has got an overweight rating on . What are you advising to investors?

On one side, the demand scenario remains extremely upbeat. There are no questions on that particular aspect including in India as we are going to see the larger amount of money being spent on infrastructure led activities by the government.

The positive tractions are likely to be seen going forward in the current year and next. As there is spending on the larger part of the infrastructure projects, metals are going to be in demand for sure. The question would be about the margins in the intermediate period. On the one side, we are seeing that crude oil prices cannot sustain at this level and on the other hand, China has already started booking the forward contracts at lower prices in metal commodities. That is an indication that the prices are not going to sustain in the international market. They are going to fall.

In the intermediate period, we have higher crude oil prices and the resulting higher energy cost and on the other hand, we have to book metals at lower price for the future contracts. In such a situation, the margin will come under pressure and that is going to have an influence on most of the companies.

It is not that the companies are not going to get profit, but there will be larger amount of inflows in the businesses of the company. Given that situation and given the situation that most of the traders have remained long in metals up till now, if they end up cutting down the long positions, technically metal stocks can remain sideways to down for some more time.

We will have to wait and buy into metals with conviction probably along with some amount of indication in the crude oil prices. If crude oil prices are showing a downward trend, metals would be the buy opportunity at such a point of time.

Some of the PMSs are now feeling the heat of redemption and are throwing in the towel?

Running the PMS ourselves, I find that that is not the situation. Investors are not panicking. On the contrary, we are experiencing a fresh round of additional funds coming into PMSs. I am not too sure about the other organisations which may be playing around with the trading aspect of the stocks, but for the long- term investors in those schemes, the panic is not there.

Having said that, the important aspect is that the correction in the price is more due to other than fundamental reasons. The market technicals have probably played a larger role for some of the largecap companies. In the analysis, some of the largecap companies are not likely to have a fall in performance beyond a point – be it



or for that matter HDFC.

All of these companies are basically having relatively steady performance though in some pockets, there will be pressure on the margins on the likes of Asian Paints. But that is possibly part of the higher amount of raw material cost which currently would affect them but not the demand situation.

So overall, some of the largecap companies have corrected sharply by 30% or so and they hold the potential to bounce back in a normal, stable market and should that happen, most of the PMSs and their investors probably would buy into this market including this particular fall.

Are you feeling some pressure because of the way brokerage stocks are coming down?

I understand the kind of pressure on the brokerage desks. From the peak levels, the volumes have come down and that is a cause for little bit worry also because for the first time in the last one and a half years or so, the cash market volume has started coming down and in some of the days, probably is at the lowest of the last two years.

That is not a good sign because if the participation is less in the market, of course the brokerage desk would run dry on this particular issue. However, on the institution desk, we see the volumes remaining almost normal or a slight fall. I am not talking about the derivative side of the desk, I am talking about on the cash side of the market, where the institutional funds are also looking at the opportunity to buy at the lower level in some of the stocks.

I think they were switching over from a few stocks where the valuations are still premium at this point of time. So that desk is probably having relatively stable business while the retail desk at this point of time is facing some amount of challenge and a fall has been experienced over the last two months. So yes, I would agree to that part of it.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)

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