Market oversold, banks spooked but good play: Choksey

The Reserve Bank of India (RBI) issuing licenses to smaller banks and introduction of payment banks spooked banking stocks which collapsed on Thursday's trade, says Deven Choksey of KR Choksey investments adding nothing has changed as far as valuations are concerned. He advises buying private sector and larger public sector banks.Meanwhile, steady slide in rupee is leading to flight of hot money, which in turn is resulting in carnage in equities. But Choksey says the market is in oversold territory and expects buying coming in soon.  Amid the mayhem pharma has been a safe haven and Choksey preferes Cipla, Sun Pharma and Glenmark.Below is the transcript of Deven Choksey’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18. Sonia: What happened with the banks yesterday, not just the PSU banks but the private banks also completely collapsed, names like Yes Bank, etc. Is there some genuine problem or is this just profit booking and what would you advise investors do with these stocks? A: As I gather, larger amount of concern started coming up from two areas, one the Reserve Bank of India (RBI) is coming up with the small bank licenses in the next month and there is a fear that some part of the existing banking business might get shifted to the smaller banks and that is where the fear probably escalated to some of the private banks which are definitely victimised more because of the valuation at which they are quoting at this point of time. The pay banks where people have started confusing themselves with the kind of an environment wherein they would start believing that the existing banks would have an impact. In fact the story playing around in the market would be that it is similar situation to what at one point of time you had a full-fledged airline service provider and on the other side discount airlines coming up. That kind of comparison started coming up. So, according to me it is more of a fear factor vis-à-vis anything fundamental is wrong with any of the banks per se. They are quoting at a valuation which is on the higher side but at the same time they have been like this for such a long period of time and the investors have been finding merits in the business as well. So, I don’t see too much of a concern on that side at least on the fundamental front. Latha: At the moment, in the fall are you buying anything at all? A: Many of these banks, they remain interesting play. Latha: Public or private? A: Private sector banks definitely remain in play and at the same time even in public sector banks, as we have been saying, the larger public sector banks, they remain definitely in better placed opportunity compared to the mid-size and the smaller-size public sector banks. So, certainly they remain effective play as far as valuation goes particularly when you are comparing with the private sector banks. However, corrective downside beyond a point would invite buying interest into these companies. Particularly because we believe that it would be ultimately services which would determine the retention of the customer within the bank. So, certainly if this fear is there right now, maybe one will have to play the corrective downside and accordingly buy at lower levels. Latha: Anything that you picked up in Central Bank of India, the way it is falling like no tomorrow? A: Not really. We have been saying that stay away from some of the mid-size and the smaller size PSU banks. Beyond that I have not captured many things happening in this particular space for the time being. Sonia: Just talking about the pharmaceutical space because that has been the safe haven now for a while, what are your top picks over there and would you continue to stick with the bigger ones like Sun Pharmaceutical and Lupin? A: Within the list, the preference is pertaining to Sun Pharmaceutical, Cipla and Glenmark Pharmaceutical. We continue to hold preferences largely due to the individual merits that we find in almost all of these companies. We fully understand that this particular financial year would have some amount of ups and downs particularly for Sun Pharmaceutical because of the quarterly reporting of numbers and somewhere exceptional items getting reported as well during this quarter. So, the opportunity would be that in corrective downsides during this particular result announcement season or otherwise would be a buy opportunity. Currently trades at around 25 times price to earnings ratio anything substantially down would make sense to add further into the portfolio. Latha: Is IT a place to hide, is pharmaceutical a place to hide or in this tsunami everything will fall? A: I don’t think that you could generalise this. The market is definitely getting into the oversold situation at the same time and some of the hot money is moving out of the system from even a domestic space. On the other side the foreign institutional investors (FIIs) who have been having higher amount of exposure to India due to the fall in the currency value, they are forced to withdraw part of their money. So, certainly that kind of hot money which is getting out of the system is causing this particular fall. However, at the same time market is getting largely into the oversold territory. So, it would have a tendency to bounce back. Now, whether it would bounce back from 8,250 levels or it will go down further and then start resuming the buying interest is difficult to predict at this point of time. However, certainly would like to believe that there would be a buying opportunity into the market and you would be seeing the buying coming up from some of the large institutional investors in this particular period.