Expect greater opportunities in metals space: Deven Choksey

Individual companies are also positioning themselves relatively better. Most of them haven't expanded the capacity in last many years, which they are seeing a good cycle of around next three-five years which is emerging very strong. As a result of which some money is going to come in for expansion of capacities.

However, not too sure about how Hindalco is utilising this condition and putting the money into the system but I do believe that the company has got relatively better plans than what they had the clarity in earlier times. So I think that we should be seeing greater opportunities in some of the metal companies.Anuj: The other space which has been quite active off late is the telecom space. We have seen decent gains in stocks like Idea Cellular and Bharti Airtel from the lows of course. Is this a space that you would still back or do you think it will still underperform over a larger period?

A: It is a very pertinent question and at the same time the understanding on the subject is coming out clear. The telecommunication companies which are in the listed space are undergoing a massive amount of capital expansion programme in their own space; they are required to not only put money into the spectrum but also required to put money with the change in the business model taking place with voice revenues going out of the system, they require to put more money in building the data network and the ability to deliver the data services to the customers through variety of applications etc. I guess these companies are likely to remain in the capex mode for next two years and above. If that is so then in that situation the challenge would be - on one side the revenue book is coming down very sharply and on the other side we will have a massive capex programme to incur. Unless they capitalise further, I do not think these companies would have any other alternative and given that kind of a situation my reading says that over next four-six-eight quarters most of the telecoms are going to undergo the pain in their businesses. So stay away for the time being - that's the view we have kept and we continue to hold that view even for now.Anuj: What pockets are you buying right now where you think the risk reward are still favourable?

A: The larger part of industry is into some of the largecap stocks. You find the companies in automobile space which are available at a reasonably attractive valuation given the growth momentum that they are assuming in the situation like where the commercial vehicle business has started picking up and even the two-wheeler business is showing a distinct character of reviving on the demand side with the festive season happening in rural India, this is going to be even more stronger. However, at the same time farm equipment business after last year's successful monsoon is showing robust signs of picking up. So automobile is one such area where we definitely believe and among them are the largecap companies like Tata Motors are favourably placed and their valuations are also in favour of investors who are taking the position. The same way you are finding good opportunity in the story of banking companies coming under consolidation and most of the banks are showing good amount of character of growth going forward, so these bank companies could possibly be the another good choice that one could look at.

However, in the largecap space you have good public sector undertaking (PSU) banks at the dealership level, available at a valuation, which is quite reasonable as I would like to call it to enter into.  The risk reward ratio definitely tilts in favour of the rewards vis-à-vis the risks at the current levels of the valuation. Likewise commodity companies within the cement basket looks interesting, even metal basket looks interesting. So selective pockets within the largecaps are looking more interesting vis-à-vis some of the midcaps who have run-up ahead of time.Latha: Reliance Industries is looking for USD 11 billion in terms of returns from Reliance Jio unit by 2021. Some analysts say they were not prepared for such a big number and CLSA has given a huge upgrade. What are your thoughts on Reliance?

A: The initial thought remains very clear that having secured about 10 crore customers in the first leg. In the second leg, in this financial year '17-18, in first six months I believe another 10 crore customers would be secured and given the kind of integrated play that they have for offering of the product in the form of the data services on the mobile - you already have the multi-system operator (MSO) kind of licence that they are having. Ultimately I believe that the offering would be very strong and the contents would be supplied through this particular broadband network that the company has created. So that's very favourable for the consumers per se who would be basically shifting into this particular company as a subscriber and that too at a cost which is reasonably low compared to the other competitors who are providing including set top box cost, including the cost of 3G data services that is provided by the telecoms. So that gives me a conviction that the company has a good revenue visibility of about Rs 60,000 crore in a full year '18-19 and probably Rs 24000-28000 crore of EBITDA in that particular year which would make an unique case where the company in the first full year of operation could register this kind of volume numbers and the revenue and profit numbers. So if you look at the amount of the money that they have invested into the business, it's around Rs 2 lakh crore and little above that eventually, I think Rs 550-600 per share kind of a valuation coming out from Jio is very distinct in very near future. So that should add up to the price at which the company is quoting today. So that's why you are seeing 40-50 percent of upside into the stocks going forward of Reliance Industries.

(Disclosure: Network 18, which publishes moneycontrol.com, is a part of the Reliance Group.)

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