markets: AMCs, insurance stocks offering good money-making proposition: Deven Choksey

“I am not getting into the portfolio allocation subjects at this point of time, but I do believe there is a maturity out there with the BJP government and its allied partner. They know fully well that if the country is progressing, then possibility of getting higher amount of share for the state or for that matter that people in the state I guess it could be much more realistic,” says Deven Choksey, MD, DRChoksey FinServ Pvt. Ltd.
Well, there was almost, to hell and back, kind of a move for the market. At a point in time, people are talking about 18,000, 20,000 may come, BJP has not got the majority it was looking for, this, that. But pretty mature reaction of the market yesterday as the market came to terms that coalition government may not be a very bad idea. We have got a history, a successful history of coalition governments in the past. Markets have generated positive returns, economy has been on upswing in many of those terms as well. So, now that it is established, what are the things, monitorables in your view, which the market will focus on in the near term?
Well, I think it is a sign of a matured market undoubtedly. On one side, you have a coalition government. On the other side, you have very strong man at the top, who knows how to maintain the relationship with one and everybody. He has demonstrated these skills in the international markets wherein he has managed the relationship with the global countries.
I am sure these skills are also equally important for India, India as a country, wherein all the allied partners with whom he is working, I guess he is going to maintain a very strong relationship.

And strategically, this is very important. I am not getting into the portfolio allocation subjects at this point of time, but I do believe there is a maturity out there with the BJP government and its allied partner. They know fully well that if the country is progressing, then possibility of getting higher amount of share for the state or for that matter that people in the state I guess it could be much more realistic.

So, I guess I think a good support is coming. And because of that, I believe that the market is going to remain positive. Investors are going to be remaining confident. Maybe these numbers are going to be forgotten after a couple of days once the ministries and the governments are formed. We are likely to see the allocation of money towards a higher growth programme. In our understanding, the 100-day programme which Modi has talked about is well on the cards. Probably I think implementation of this subject is being keenly looked at by the market participants. So, overall, I believe that the opportunity side is not reducing. On the contrary, I believe that some of the sharp corrections in individual stocks is keeping a good amount of possibility to buy those stocks into the portfolio, because of other fundamental reasons these stocks have corrected. Fundamentals remain very clear in most of the business cases even at this point of time.

I wanted to speak to you about the 100-day agenda. Channel checks seem to be suggesting, in fact, CLSA is saying that the channel checks suggest that in the 100-day agenda, the key focus of the government could be infra and defence. Now, with the caveat that many of these defence stocks have already moved up quite a lot, which are the ones which you still see juice in, in defence and infra?
I will answer the question in a while, but my understanding says that I think the key agenda in the 100 days is going to be pushing forward the reforms. Allocation of money towards infra is definitely understood because every spend that you do in infra results into consumption increase and also the tax increase and because of that the government’s ability to carry on this activity further and further, so that is absolutely unquestionable.

I think that allocation in infra will continue. From 11.11 lakh crore allocation I will not be surprised in the final budget, the main budget, that amount increases to 12 lakh crore, so that is a distinct possibility and it is likely to increase every year by 10% to 15%., that is absolutely clear. Now, when this particular situation happens, in my viewpoint, entire manufacturing space gets the maximum advantage because when it is an infrastructure-related activity, not only the capital goods segment, but the supporting players, the ecosystem along with, they are all beneficiary out of it including the metal commodities.
So, in my viewpoint, we are in for a major-major upside in the entire economy due to the manufacturing push which is coming in. But when I was mentioning about the reforms, I think that is an interesting proposition.

I believe that there are two significant reforms likely to come up in the 100-day agenda. One of them is likely to be CBDC, Central Bank Digital Currency. My understanding says that the physical currency will be asked to be swapped with the digital currency and the key rationale there would be that with the digital currency coming in, it will have the ability for the RBI to measure the growth of circulation and liquidity into the economy and that could possibly allow them to manage the inflation part much more significantly.

Should you manage inflation well? I think all of the equations fall in place, I think that is what is fully well understood. So, in my viewpoint, I think it is CBDC which is going to take one clear sure. And second one would be the ONDC, Online Network of Digital Commerce.

This is already launched subject, but I think now it is time to integrate it along with the rural players, so that I think the buyer as well as the seller come on the same platform for e-commerce and ultimately get the advantage in form price, inflationary pressure on the prices.

Just your thoughts on how one should look at some of the high beta plays like the Adani names, for instance, right now.
Absolutely convinced about the fundamental stories within the infrastructure. And this infrastructure story, the beauty part of this infrastructure story is that once the infrastructure is laid down, the businesses start producing cash and I think ultimately you work on negative working capital.

It has been seen in the areas of road assets. It has been seen in the areas of airport assets. It has been seen in many of the areas including the distribution of power wherein companies they end up generating significantly large amount of cash after the real businesses have been set up.

Now, in this case of Adanis also most of the businesses are generating significantly large amount of cash. Already they have about 80,000 crore EBITDA. They are growing at the rate of around 20%. By end, they have got a net debt in books of around 2.25 lakh crores, so which is basically not significant from the point of view of the payability of this particular debt concerned.

So, all equations in the checkbox they are working right for this at this point of time. And in my viewpoint is that premium valuation in some of the cases I think most of the companies are right for a good amount of growth in their profits in coming years.

So, definitely any correction in the price or the fall in the price would become the best opportunity for those who have missed out investing into this group.

I want to talk to you about these wealth management stocks and even for that matter, AMC stocks. The reason is that while we all know that some of these stocks have been direct beneficiaries of Indians HNI retail, latching onto the equity bandwagon. But now, the news incrementally is that some of these companies like Nuvama, 360 One are aiming at NRI and the wealthy global Indian fraternity opening offices in Singapore, Dubai as the latest news suggests. Do you see this flow business to come into these kind of companies in a more structural manner and would you recommend wealth companies or direct AMCs to be part of the portfolio?
Well, I guess there is no denial of the fact that most of the intermediaries would be the beneficiaries because of the higher amount of generation of investment surplus in the economy. Today, we are a $4 trillion economy out of which about $400 billion is I think coming into the financial assets. Tomorrow, we are likely to be, in the next 10 years’ time we are likely to become a $12 trillion economy and we are likely to see four times growth in the financial asset to $1.5, $1.6 trillion.

So, which means that anybody who is systematically focusing on this pie, they are going to be significant amount of beneficiary in this particular game plan. Whether individual companies, whether the distributors should be looked at, whether the fund management company should be looked at, whether it should be looked at or whether the asset management companies should be looked at, I think the opportunity is fair and square for everybody in this particular game plan because I think the size of the cake is growing and growing big time.

If I have to put across my energy behind identifying two sectors and the companies therein, yes, definitely, I think the AMC business looks very-very convincing. Out there, the growth in the size of the asset will result into higher amount of AUM and ultimately the valuation.

Similarly, the insurance companies who are also clocking in around 20% new business premium, they are likely to see higher amount of growth in the AUM investment area and that is also likely to result into better valuations going forward.

Rest on the players selectively be looked at I think from more the individual specific opportunity point of view, but I think from the sector allocation point of view, these two segments looks relatively better off compared to it. Maybe depository can be added to it, but I think the money-making proposition stay very high with AMC as well as the insurance companies.

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