Deven Choksey: Time has come for beaten down Axis and ICICI banks to get rerated: Deven Choksey

Talking to ET Now, Deven Choksey , MD, KR Choksey Investment Managers , says this market is giving lots of opportunity at least on selective basis and so one will have to keep an eye on those opportunities vis-a-vis the index.

Edited excerpts:

This morning the top talking point is what the index does at 11,000. The momentum this market has shown from 10,000 to 11,000 in a matter of three months and especially from 10,200 odd to 11,000 from the start of the year, just reflects the kind of confidence the market feels about 2018, at least the beginning of the year. This seems to be the most powerful rally that we have in the Budget in recent times. What would you take away from 11,000 and where we are macro wise on the earning side amidst the earning cycle to take the markets from here?
If I reflect upon what has exactly driven this particular index, then probably I would find that the participation of some of the large-cap heavyweight stocks has basically driven this index up and that includes the likes of TCS, HDFC Bank and Reliance. With their sheer weight, they are pulling the index up and that is name of the game right now is because index stocks are pulling the index. Heavy weight index stocks are pulling the index.

On the other side, there is a weight reallocation happening into the other stocks in the indices. Even their participation in the market place is increasing.

Fortunately, the names which I have talked about have started talking about the fundamentals which are started growing faster than probably they have seen in the past including in case of Reliance wherein one has not seen kind of jump in the profit that one has seen in the last quarter and this could be probably the beginning of some large profit jumps coming in because of the investment programmes successfully completed.

A similar situation is being seen in case of HDFC Bank. Among the private sector peers, this bank has grown at a faster pace and at a higher amount of advances. A 27% growth in advances have been recorded in this quarter. So, if index stocks continue to do what they are doing currently, then the level of index or the number of index could be a matter of counting.

More importantly, this market is giving lots of opportunity at least on selective basis and so one will have to keep an eye on those opportunities vis-a-vis the index.

I agree that 2018 could be the year in which you would see some of the large-cap companies participating far bigger than the midcap companies but still, more than index, one should keep an eye on the individual stocks where the earning opportunity could be even bigger in this 2018 period.

Today I want to get bearish on Reliance not because it is not a great company but because the runup has been strong in the stock and because the PE multiple which Reliance currently has to offer is actually in line with the historical averages?
I like to take this challenge and probably expression of yours as well. My fundamental reason for Reliance is two-fold. One of its core business, particularly the petrochemical polymer segment has completed the capacity expansion and they are right now at 30 million metric tonnes capacity. Not all the streams have generated enough amount of revenue and the profits in this quarter. That is what I understand but the fact remains that these particular streams are now ready to show higher amount of volume-led growth for the petrochemical polymer segment.

We are expected to see around 15% to 20% kind of growth continuing in the petrochemical polymer segment alone. On the refining side of the activity, we have already seen the change in the feed stock and the resultant outcome in the subsequent quarterly result should be out soon.

All in all, put together from the core business alone, I am expecting between 15% and 20% kind of growth at least for next four quarters on quarter over quarter basis as far as the year goes.

On the other side, the consumer facing businesses -- both Jio and retail businesses have started showing distinct signs of growth. Jio, in fact, is the most profit making company in the telecommunication space today. I see a large potential for Jio at this point of time and the growth numbers could probably follow. Looking at the data consumption at Jio, growth numbers and profit would follow. That is the fundamental reason for the higher amount of profit growth in the company. Reliance could again be a buy opportunity. Even the fact that they have completed the capex programme, makes the opportunity more clear in successive quarters.

On Axis Bank, do you think within the private banks, it is time to bet big on corporate lenders, particularly Axis and ICICI Bank?
Yes, certainly. I would like to think that way. The situation of NPAs has probably come under a lot of control and with the NCLT way of working coming in, most of the banks could be in a position to recover their money faster than what we had earlier envisaged. To a greater extent, the lending book of the banks could probably start showing relatively better performance and that includes the likes of ICICI, Axis Bank along with other PSBs where you have this particular opportunity coming your way.

Fortunately. because of the good investment market currently, both ICICI as well as Axis are showing distinct growth in the fee-based income portfolio which they are generating from their other verticals. This is one area which one cannot neglect and I agree that the time has come for the beaten down Axis and ICICI banks to get rerated from now on. We would keep an eye on these particular stocks as well and a correction in the market could always be a good opportunity. But at the same time we should look at the amount of flow of money coming into the market and chasing such kind of neglected areas and that is where there could be an opportunity to buy into these stocks.