Wait for a dip before adding Adani Group stocks in your portfolio: Deven Choksey

“When global investors look at India for investing into infrastructure for long tenure, particularly the endowment funds, sovereign funds, the insurance funds or the pension funds, they typically look at a proxy to invest in India through these infrastructure companies. That is where probably Adani Group of companies are giving them relatively better clarity under the well-planned growth plan that they have created,” says Deven Choksey, MD, KRChoksey Holdings Pvt. Ltd.

Part of the critique on Adani, besides the huge debt on their balance sheets, was also the large promoter holding. With the FPO now, that gets a little bit diluted. How are you looking at the Adani group of companies now?
Particularly for Adani Enterprises, which is more of an incubator company, the larger part of the money is expected to be spent on the renewables going forward, which they are raising currently. Also included are other assets like airport and road assets. They have been constantly building newer properties. There also some part of the money is expected to be spent.

So given that kind of situation and given that Adani Enterprises basically demerges those companies once the business becomes relatively more stable, I would rather think that there would be an opportunity for investors in these particular businesses.

Infrastructure businesses normally have a habit of a long gestation period at the beginning, but once the projects get matured, they start generating a steady set of cash flow. That is what one has experienced in various other Adani Group companies including ports, green energy, transmissions and gas distribution.

So from that perspective too, these companies have become more of a steady cash flow generator as a result of which, the group is investing out of that cash flow in building more and more assets. One important point along with the directional call on the fundamentals, is that when global investors look at India for investing into infrastructure for long tenure, particularly the endowment funds, sovereign funds, the insurance funds or the pension funds, they typically look at a proxy to invest in India through these infrastructure companies. That is where probably Adani Group of companies are giving them relatively better clarity under the well-planned growth plan that they have created.

So, I would remain a buyer into this particular space, but would wait for corrective falls to add further into the portfolio.

What is it that you have seen in the Federal Bank numbers because clearly the NIM expansion is quite sustainable. The deposit growth is lagging credit growth and, of course, the bigger challenges are going to be fintech and the competitive intensity within the sector?
As you rightly pointed out, this particular bank has definitely shown a steady set of NIM growth. In my view, many of the banks, probably in this particular period, expected to show relatively stable NIM growth continuing. The challenge would be to manage the liabilities side well in a rising interest rate scenario and that is going to be a real challenge.

As a result of this challenge, pressure might come on NIM going forward if they fail to honour a good set of corporate borrowers and for the retail segment in particular, part of it is applicable to the corporate borrowers.

Fintech is going to be the key driver. Fintech is basically in the front end and would either create a distribution reach in the retail segment or bring the efficiency reach to the corporates in the form of lending at a given point of time. If these particular platforms are not adopted quickly, then I see the possibility of some of the good quality banks lagging behind in cornering their market share because their customers would not wait.

They would probably go with the lenders who have a better ability to lend. This is where major challenges are coming in for small to mid-sized banks and that is where investors will have to shift their focus to a larger bank, where the size of the book is big enough to lend, where the technology platform adopted has a great amount of capability to expand the business on a sustainable basis.

So yes, some of the banks may be available relatively cheap at a valuation. I would rather think of paying a slightly higher premium on the valuation side. But stay with the quality franchises from the investment perspective.

PVR and INOX were under pressure on Monday. There was a downgrade coming in from Kotak as well, talking about how the consumer behaviour is changing with low tolerance for not so great content coming in from Bollywood. This came at a time when the Street was pencilling in a lot of synergies coming out of the merger. Should one really consider playing this merger theme or should one stay away?
The merger probably would create a good amount of pricing power in the hands of the merged company – PVR. Given the kind of content that we are currently experiencing, I think there are a class of people who basically want to go for the low-budget films, and that is where the collections are relatively less and there is a class of very high-budget films coming up, particularly from the southern territory, which generates higher amount of revenue also.

The industry is quite divided as far as the class of films are concerned. In my understanding, an interesting shift is happening currently, where in a large part of classy films, which are watched by people who are basically into watching art films, going onto the OTT platforms and for masses, the larger ticket films are coming up.

Given this kind of shift, somewhere one will have to argue that if you have a larger amount of seats available, you will have better ability to collect revenue. But having said that, this is not going to be an easy task. That is where one will have to remain a little bit more watchful. This particular space is becoming more seasonal these days rather than a regular income generator. So having sustained investment in this particular space might disappoint the investors to a certain extent.

From a broader market perspective, are there any top stock recommendations?
Many of the midcap companies are in quite a strong proposition, some of them are in the business of 5G and 5G-related ecosystems, some of the companies which are there into the defence and defence-related ecosystems where we believe the opportunity is possibly good from the investment perspective, including some companies which are having a strong proposition on contract manufacturing side and the API side. As far as the chemical and pharma space is concerned, we remain convinced about it. There are some of the mid-sized companies which have got higher potential with a good amount of visibility on the business they remain in our preferable list as far as investment outlook is concerned.