Why Deven Choksey prefers TCS and Infosys to HCL Tech

Given the kind of market cap on which TCS is sitting and given the kind of flow it is having into the system, I would think that it will be a steady performer going forward as well, says MD, KR Choksey Investment Managers.

What is your view on HCL Tech? If one has to buy a largecap IT stock, should one go for TCS or take a chance with HCL Tech which gives you better growth but at lower margins?
Tata Consultancy Services and Infosys are steadier growth providers. Infosys is leaning more towards the digital part of the economy and growth. Their digital interface vertical is growing faster than the other verticals, Infosys is my preference from the point of view of buying. At the same time, there is a headroom for appreciation as far as Infosys is concerned and that remains my preference.

Having said that, you are absolutely right. On one side, HCL Tech is providing higher growth comparatively but with a lower margin. It would be better to stay with Infosys and TCS. For the time being, HCL Tech is driven more by the momentum in allocation of more money in that counter but I find the other two steadier as far as portfolio selection is concerned.

What is your view on HCL Tech versus TCS?
Considering the fact that the market likes to buy into the momentum because too much funds are flowing into the system, obviously where there is momentum, the market goes out into buys. HCL Tech definitely gave very aggressive guidance after their results. This is one of the reasons for which they attracted more investors or traders into the system. My view point here is that the larger the size of the company, more would be the ability for those companies to attract some of the traded funds because today the markets across the globe and in India are driven by liquidity. If you have a larger platform to invite more number of investors with market cap, then it is all the more reason to attract good investors or traders into the counter.

If TCS has not probably performed in last few months, given the kind of market cap on which they are sitting and given the kind of flow that they are having into the system, I would think that it will be a steady performer going forward as well. It would be a traders’ delight to buy into and sell out of this particular counter because it is providing the size for trading. It is driven by more liquidity at this point of time and probably liquidity chases few stocks and that is where you find exceptional movement in some of the counters like HCL Tech.

Closer to Rs 110, is BEL a good stock for this year given the excitement around the defence space?
There are certain businesses which are good. Corporates run those businesses and grow those businesses. Defence is one of those businesses. The government has opened up this particular sector and the growth drivers are in place but if you look at the way in which the defence and railways businesses operate, you will never be able to command the price in the premium. As a minority shareholder, what is there for you? You are excited about defence as a business per se, the kind of volume that it would have in the next five, seven, eight years. That is okay but would it bring the kind of a growth which you want to see in your portfolio as far as earnings and appreciation are concerned? Maybe yes but not as much as I think you would have got from some other space. The consumer facing businesses are generating enough cash and at the same time a higher sustainable volume.

Businesses which are largely dominated by the government where the margins remain under pressure and the challenges would be of times. On any given day, you may not have enough orders. Those days you will suffer as an investor so my preference would be to stay with the consumer driven businesses and large businesses which are capital intensive for corporates to run and make the best out of it.

What about Ashok Leyland? Do you see a strong recovery play at this point?
We have been liking this particular space for some time and since March when it fell, we have been accumulating this particular stock. These are exceptional times and they suffered because of the lockdown. But as the economy starts reviving with the government starting new infrastructure projects, companies like Ashok Leyland and Tata Motors are definitely going to be the ones who would be basically getting completely attracted because of I think the larger potential that they hold on one side.

Second, we keep on hearing about the scrappage policy coming in and hopefully this is coming in for real this time around. If that happens, then this is going to be a new normal as far as the commercial vehicle segment is concerned as they could be seeing the revival of demand in next two to three years. I would love to buy this particular company from the investment point of view. I would like to hold it for a steady return as far as investment in the portfolio is concerned.

In the near term, do you believe that at Rs 2,300, all the good news with Reliance Retail is baked in?
Yes, by and large, this particular price is suggesting that most of the good news is already built in but what is next? The new investors are coming into the company bringing in strategic value and ultimately the business will start growing. It is the business model which is basically making more sense. An omni channel is emerging with an O2O (offline to online) model.

Already the company has got very strong footage as far as the offline business is concerned with entire supply chain logistics already built in. If you start supplying on an online basis and connect all the nearby stores, they are leveraging the existing infrastructure which has been created for the stores. As far as the backend is concerned, it gives them an edge over others.

Combining the two aspects, Reliance Retail would be more real time in delivering the goods and services to their customers which is basically more effective. At the same time, it could bring down the cost because they are leveraging it with the offline infrastructure and this is where the business model is likely to get a better premium and better attention. They are leveraging the Jio platform and that is giving an advantage. One will have to see how exactly this gets implemented over a couple of years, but it looks pretty certain that company’s going on a good track. It would attract good quality investors into the company.

There’s a buzz in the agri commodity space. What are you picking up from that pocket?
We have not done too much work on that particular side. We have largely been following companies like UPL where we feel very comfortable. They have presence in multiple geographies. They are into the seed business and business pertaining to crop protection. We like UPL and that is where we stay comfortable with some of the large companies.

Our philosophy has been to stay with those companies where business growth can be expected over a longer period of time because globally we are in volatile times. If you are not comfortable with the sustainability of the business , you may end up making larger mistakes in your investment portfolio. So with that philosophy, we continue with the likes of UPL in our portfolio, We like this company from the investment perspective.