Among IT largecaps, most confident about Infosys, followed by TCS: Deven Choksey

“TCS is largely doing well but at the same time, Infosys is giving a higher amount of confidence both in the form of maintaining and upgrading guidance from a quarter on quarter basis and at the same time, improving the margin going forward. In fact, the larger deals that Infosys is consistently winning, gives me more confidence along with TCS. So the first one would be Infosys and second would be TCS if largecaps have to be selected,” says Deven Choksey, MD, KRChoksey Holdings Pvt. Ltd

How do you now stack up TCS and Infosys? Do you think the worst could be behind in terms of the stock prices?
In fact Infy’s result and the guidance about the improvement in the numbers that they are targeting is definitely very soothing in the face of market apprehensions. Along with that, they are winning some of the large deals and that is more important to me. I have always been told that the fear about Indian IT companies getting affected by recession is discounted largely because of the fact that the entire world wants to get into an advanced way of delivering the solutions to the end customer.

Till yesterday, the solutions were demanded in the space of enterprises. Now onwards, the solutions are being demanded in serving the customer in the last mile, that is direct to customer or B2C. That is where most of our companies are winning larger contracts.

The visibility of the next five to seven years in some of the contracts gives me a lot of confidence about Infosys maintaining a 15% plus kind of steady rate of growth, continuing for the next five years or so in a very sustainable manner. That is where, any correction in the price or softening of the stock price due to whatever reasons, is a good opportunity to buy into some of the stocks, particularly the larger ones like Infy and TCS.

As far as appreciation is concerned, one cannot rule out the possibility of 15% to 20% appreciation in a normal to good market going forward.

HCL Tech, TCS and Infosys – which announced the best numbers, according to you?
Undoubtedly Infosys gives more confidence versus HCL Tech. HCL Tech has softened part of their margin guidance and that is where one would like to remain a little bit more cautious. TCS is largely doing well but at the same time, Infosys is giving a higher amount of confidence both in the form of maintaining and upgrading guidance from a quarter on quarter basis and at the same time, improving the margin going forward.

In fact, the larger deals that Infosys is consistently winning, gives me more confidence along with TCS. So the first one would be Infosys and second would be TCS if largecaps have to be selected.

Some of the best businesses had become bloated PE stocks and that is reversing. There is a universal fact at play here – be it Bajaj Finance or Asian Paints, Pidilite or even Divi’s.
Unfortunately, in every bull market, we have cheap money coming in, chasing some of the good quality stocks and they give unreasonably high premium valuation to those companies. So many times they get corrected once the cheap money goes out and that is exactly what is happening currently.

Most of the leverage funds globally put in more and more money in some of the large businesses. They had to withdraw this money because the deleveraging process has started and on top of it, if the companies have moderated their guidance. These people cannot wait anymore and that is where we are seeing the victimisation process happening at this point of time.

I believe that they are great businesses. Asian Paints is a great business. Bajaj Finance is a super business for that matter. The way in which they are articulating the entire digital journey at the front end, there is no doubt that these businesses basically record even better performance than ever done before on a sustainable basis.

So is the situation with Divi’s expanded capacities. I would think that these companies deserve more as far as their profit performance on a sustainable basis is concerned. As far as the stock price is concerned, this might correct to a certain extent, but that correction would invite some good quality long-term investors into these companies. Maybe there’s some pain for investors who are holding the stock, but there is definitely a better opportunity for buying into some of these companies at lower levels.

Do you think in the short term, selling will continue for Paytm, Zomato, Policy Bazaar and Nykaa?
My reading is that they are great businesses. Even though Nykaa is more of a hybrid version of online business, I still believe that it is a great business. However, it is not necessary that all these businesses earn a good amount of return for the investors. These businesses have been built, they have done reasonably good in this particular period of time including Paytm, as one who uses their application would vouch for it.

For investors, this business model is still not as good as it should be and that is the reason for which as an investor, I have to be matured enough not to buy these stocks into my portfolio till the time I see signs of the company making profits and on a sustainable basis, produce growth. Otherwise these valuations will kill the investment portfolios and that is happening in these new age stocks.

They are good businesses but not friendly for investors and one would not be basically very inclined to buy them till they show the path to sustainable profits going forward.

What is the outlook within the entertainment space? Looking at synergies that we are likely to see on ad revenues, the combined revenue perspective as well from PVR and Inox, are there any concerns or any worries that shareholders should be afraid of say Covid resurfacing or the kind of spate of the flops that we have seen from some of the recent Bollywood films?
Exhibition business is going to survive and grow undoubtedly. Within the entertainment space, these businesses are surviving and growing and these two companies coming together is also giving them a lot of pricing power as far as the opportunity goes.

In a given situation, some large ticket movies are coming out. The combination of both these companies would be in a position to dictate the amount of pricing which otherwise would probably get compromised in the competition. Definitely, it is going to be a win-win formula as far as the investors are concerned due to this merger.

On the other hand, the food and beverages part is contributing significantly along with the ad revenues. Food and beverages will probably continue to do well on a sustainable basis. With the number of seats increasing, and with this particular revenue for advertisement, they will have pricing power for that. Overall, it appears to be a decent one as far as the merger is concerned. I do not know immediately as to how much the payback period would be. Ultimately one has to look at the valuation for the combined entity in the coming time. One will have to wait and see.

FIIs are selling, FDI flows have not been strong but the rupee is strengthening. Why is that?
One of the important factors is that the import bill is likely to come down because the crude oil prices are down and the resultant commodities could be one of the reasons. But more importantly, both on the FDI and FPI front, my strong reading says that even though in the current numbers, we may not see that excitement which is very much built in that inflows are going to go up, because India as a country has managed so very well that majority of the funds are likely to get channelized.

Currently the portfolio funds are moving to some other markets right now for the trading purpose but given the end of the first quarter or maybe after the Budget, we will be seeing money flowing back to Indian markets once some amount of headroom is created in some of the largecap stocks, – the high value stocks.

So all in all, my reading says that Indian rupee is likely to remain in the vicinity of around Rs 80-82 for a good period of time this year and maybe the flow of money on the FDI and subsequently on the FPI fronts would be consistent with crude oil prices remaining down. This would create a possibility of higher conviction for a sustainable rupee going forward.