Deven Choksey bullish on financials and metals, but cautious on pricey defence and EMS stocks

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Market expert Deven Choksey has shared a bullish outlook on the financial and metals sectors but advises caution on defence and electronic manufacturing services (EMS) stocks due to stretched valuations. Speaking with CNBC TV18, Choksey noted that while the business prospects for defence and EMS are strong, their current market prices already factor in several years of future growth, limiting near-term upside.

In the non-banking financial company (NBFC) space, Choksey remains positive on players like Shriram Finance and Bajaj Finance. For Shriram Finance, he believes there is significant fuel left in the tank, supported by a strong capital base and favourable cost of funds. He highlighted the company's guidance of doubling its balance sheet size every four years as a compelling formula for investors. "If one is invested for three to four years, I think naturally one is talking about doubling the size of the investment," he stated, suggesting that any price correction presents a good buying opportunity in both Shriram and Bajaj Finance.

Conversely, Choksey expressed significant concern over the valuations in the defence sector. Despite a clear government roadmap and consistent order flow, he argued that the market is pricing in growth two to three years in advance. "This market is actually pricing in everything at least two to three years in advance. That's not very comfortable frankly," he warned. With stocks trading at 65-70 times price-to-earnings ratios, he anticipates a "larger amount of sideways movement" even with a secure long-term future, making entry at current levels risky.

A similar valuation concern was raised for EMS companies. Choksey acknowledged the phenomenal opportunity in the sector but pointed out that valuations remain expensive even after recent corrections. He argued that when a stock's price has already factored in three to four years of high growth, there is no room for negative news. He suggested these stocks need to correct further to become attractive investment candidates, stating, "the fundamentals are not a question here. The valuation definitely remains a big concern and question."

On the other hand, Choksey is bullish on the metals sector, particularly what he terms "white metals"—a category where he includes copper alongside aluminum and silver. His conviction stems from large-scale investments in the power sector and the burgeoning data centre industry. He sees a major construction boom driven by data centres, citing a report that suggests spending on data centre construction is set to outpace that of commercial workplaces for the first time. He noted global capacity is expected to grow five-fold from 45 gigawatts to around 250 gigawatts, which will drive demand for steel and other commodities.

For specific investment ideas within the metals pack, Choksey recommended Vedanta, which he considers relatively safe due to its impending demerger. He also favours Hindustan Zinc and Hindustan Copper, advising that any corrections in these volatile stocks could be buying opportunities. He believes these three companies currently offer more headroom for growth compared to others in the sector.