Here are some fundamental ideas from Deven Choksey

In an interview to Latha Venkatesh, and Anuj Singhal, Deven Choksey, MD at KRChoksey Investment Managers shared his readings and outlook on market and specific stocks.

Below is the verbatim transcript of the interview.

Latha: Let me start with the auto companies, this is the D-day for them, discounts are raining; all told, will you be a buyer in auto stocks and which?

A: As I see it, at least the month of April appears to be a month in which I think the auto companies are going to have a complete disruption because on one hand, in last two days since this particular Supreme Court directive has come, I think the companies have started going on with massive discounts. I think today is a day on which the consumers are smiling with the kind of discount that they are getting particularly on the two wheelers.

My reading says that given the kind of inventory disposals that they may have to do in this particular month of April, there might be a situation wherein you would see some amount of disruption in the normal production under BS-IV. So, that could be one possibility which will get validated over a period of I think next couple of weeks I would think so.

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From that perspective, if you look at it, I think the month of April could be a month in which most of the auto companies might see little challenging time except a couple of ones who have prepared themselves a little ahead of time for BS-IV and have started producing in the month of March under the BS-IV category. So, they might not get as unduly affected, but otherwise, the rest of them probably might have a situation of some amount of production disruption as I see it.

Anuj: The other space where we have seen big gains are PSU banks lead by State Bank of India (SBI). Is that a space that you are backing from investment point of view?

A: Yes, in fact I think I feel that this is one area where one could possibly start looking at relatively with higher confidence. The reason for which is very simple, companies like SBI getting consolidated in this particular quarter, April to June, the muscle power of the bank could be significant given this kind of a consolidation. Going forward, efficiency lead gain also could come into the business; that is one important point.

However, more than that, I feel that with the Finance Bill getting through and securitised receipts coming into play in FY17-18, the non-performing asset related issues for most of the public sector banks in particular, I think would get systematically addressed here after. So, from that perspective, I think the larger ones like SBI could possibly assume a better prospect going forward.

Given the valuation at which the banks are available currently, the downside appears to be quite limited. As a result of which our reading says that this kind of a large bank could end up giving some 20-30 percent kind of an appreciation over next 12-15 months or 18 months’ time. So, that is where one could keep an eye on such banks which is now turning out to be a much larger bank than what it was up till now.

Latha: What have you actually made of the market itself? We have seen this fantastic rally in FY17, we have seen the domestic institutional investors (DIIs) buying big which could well be a March 31 or end of March impact. However, basically are you feeling confident to go out and buy at these levels?

A: I think on few counts I think I am remaining confident about the market. On one side, we are seeing a distinct improvement in the earnings of the companies and the potential for rise in the earning is going to be I think much higher going forward in FY17-18. Most of the companies who have built up till now the capacities and having waiting for the market to turn in their favour, I think the business conditions have started improving very significantly. The last quarter earnings outlook is exactly validating that viewpoint. In Q4 also we are expecting the companies to come out with better earnings.

So, on one side, you have got a good earnings growth and the outlook happening on this side and on the other side, the fund flows are increasing into the marketplace. Both from the domestic investors as well as from the global investors, the flows are actually improving and improving very significantly. Given the requirement of good quality papers in the market, we have also started seeing some amount of shortage premium as we may want to call it I think for some of the stocks which have started quoting relatively higher valuation.

However, all said and done, I believe that individual stocks are still having a lot of steam left in them and many of the frontline stocks, many of the index stocks which are largecaps, they are essentially likely to participate in a rally which is likely to emerge now in this quarter. So, certainly we remain confident about the prospects of some of the individual companies within the largecap baskets where we see a distinct improvement for potential and the possibilities.

For full interview, watch accompanying video.