Here are fundamental trading ideas from Deven Choksey

In an interview to CNBC-TV18’s Latha Venkatesh, Sonia Shenoy, and Anuj Singhal, Deven Choksey of KRChoksey Investment Managers shared his readings and outlook on market and specific stocks.

Below is the verbatim transcript of the interview.

Anuj: The stock that is leading the market is Reliance Industries. You track it of course, but do you think the risk reward is still favorable or would you advise profit taking here?

A: I think Reliance should be seen as an opportunity for next two to three years from now onwards. Probably if the market has risen I think for last three to four months, maybe I think of around 3-40 percent rally has come in the stock price, I would think that it is largely attributed to the capacity that they have expanded in their core businesses both in petrochemical polymer as well as into refining business.

So, on one side, they are going to have the volume led growth coming in because of this expansion in capacity, and other side they would have the advantage in the refining margin per se. So, that is basically attributed to the current rally in the price. I would still think that Reliance Jio and Reliance Retail, both these units within the company, I think they hold significant amount of some of the part valuation; maybe in my viewpoint somewhere around Rs 800 per share kind of a valuation between two of them is still not fully reflected into the price.

So, if the price improves to that level, maybe one could say that yes they are now finding its value into the price of Reliance. Otherwise, I would think that upside is still there. Maybe two years down the line I think we should be seeing the stock giving a handsome return from current price level itself.

Sonia: The other stocks that have been hitting new highs from the heavyweights are names like Larsen and Toubro (L&T), State Bank of India (SBI), etc. What else from the heavyweights do you like now?

A: In fact I think these two stocks which you mentioned, between the two of them, definitely SBI looks more convincing at this point of time. Given the kind of a merger that they have done, given the size of the balance sheet that they are having now with the merged units coming up, and also the fact that the non-performing assets (NPAs) is gradually coming down. That is giving me larger amount of comfort.

On the contrary, I am waiting for the NPA finding its monetisation through the securitised receipt kind of an instrument which will come up eventually in the market now that the finance bill is passed. I would think that these are some of the positives for banks like SBI and fortunately the stock is available at valuation which has definitely corrected significantly.

So, to an extent, I would think that the margin of safety is remaining higher in this particular stock. Maybe I think one could have a 25-30 percent kind of an upside target over next 15-18 months’ time in this particular stock.

Sonia: A quick word on Avenue Supermarts (D-Mart), everyone says it looks quite expensive at Rs 660, but for somebody who is perhaps still not invested in it, would you advise it or stay away?

A: The fact is that I think the stock is having relatively less amount of liquidity post listing. I think that is possibly driving the premium valuation. Leave that aside for a while, I think the more important aspect is the fundamentals of the business. The fundamentals of the business basically I think is suggesting that the company is easily expected to grow between 25-30 percent on an organic basis at least I think for next three years as far as the visibility goes.

Given that kind of situation, given the kind of supply chain cost benefit that they are enjoying in the product vertical particularly in the food grains, I guess I think the company could possibly register reasonably smart move going forward as far as the profit outlook is concerned. With the interest cost coming down, I think it is going to be all the more beneficial for the company to register better profits.
So, given that kind of a scenario, I am not having doubt in my mind about the growth in the profit that the company could register.

However, the question remains on the premium valuation. In my viewpoint, some amount of time correction is justified in this particular stock and then probably I think an investor could think of buying the stock with a view of at least two years from now.

For full interview, watch accompanying video.