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View: Banks a safer bet, clarity needed on Infosys

Banks with a focus on consumers and retail lending to do well. Over the next few quarters too, we should get relatively better performance from the banks, says Deven R Choksey, MD, KR Choksey Investment Managers.

ET Now|
Oct 29, 2019, 12.12 PM IST
Deven Choksey-1200
Over the next few quarters too, we should get relatively better performance from the banks, says Deven R Choksey, MD, KR Choksey Investment Managers. Excerpts from an interview with ETNOW.

Banks like SBI, ICICI will be in focus today. What is the key takeaway given that numbers have been encouraging from some of the key banks?
SBI’s result has been quite encouraging. The company has basically provided for all the NPAs and now the recovery process has started. The books are showing relatively robust profit performance and over the next few quarters too we should be getting relatively better performance from the banks.

The primary reason is that the banks are flush with funds at this point of time. The ill effects of NPAs etc in the books have already been factored in. You have a situation where the credit offtake is taking place. This festive season including the Navratri, consumers have started spending. Automobile sales numbers are encouraging. The banks with a focus towards consumers and retail lending would probably get a relatively better performance to talk about. SBI has already aligned itself largely towards the retail lending. As a result, we can expect better performance coming in because the consumer is indeed spending and is likely to spend in the second half of the financial year given the kind of money that he would have. Banks are a relatively safer bet and one would like to stay with selective ones in the portfolio.

What bearing would the adverse Supreme Court order for the longstanding AGR case have on the telecom players? Bharti Airtel and Vodafone Idea are liable to pay Rs 21,000 crore and Rs 28,000 crore respectively. How much of an overhang is this really?
As far as these companies are concerned, they have not factored in the provisions part in the books. But cash will have to be mobilised and three months in the pipeline you will have to mobilise about Rs 80,000 crore between these three companies; Idea, Vodafone and Bharti. The amount of money that is required to be put in is going to quite significantly stress their books.

At the same time, the entire space is moving in the direction of 5G and to have more funds in 5G related network rollout. It is going to be a bigger challenge. The one to lag behind would probably face maximum amount of brunt in the subsequent period because once the 5G network rolls out and applications start setting into those networks, it would be very difficult for enterprises to change over from those network to the newer ones.

As a result, companies like Jio would be relatively better placed in the process. It is not good news for these telcos as far as the Supreme Court ruling is concerned. We will have to see how they mobilise funds in the next three months in which the court has asked them to put in money with the government.

Another stock that has taken a bit of a hit on earnings is IndiGo. What is your view on that given the kind of cost pressure the company is talking about?
I am relatively disappointed with the disclosure standard Indigo has put across. The quarterly results have given a little bit shocking revelations of some of the costs that they have levied in the books. Nowhere before either in the conference call, earnings call or even in the interaction with the management, have they ever clarified this particular aspect and suddenly like a bombshell, these charges have been levied in the books.

So to an extent, I think one is disappointed with the disclosure standards but one is not totally worried about the kind of a result per se because they are in almost monopoly situation in the market today and that is probably giving them an edge over others as far as the entire airline operations are concerned.

Given the fact that the aviation fuel prices are under control, the biggest cost factor could possibly be helping them going forward. In my view, if the ATF goes under GST and the prices come down, which would be a challenge for the state governments too if at all they allow it. But if it comes down, then probably, it would be good going forward for the aviation companies in general and companies like IndiGo in particular, given the size of the market.

So, we will have to wait and see but as I said the disappointment continues with the disclosure norms. The company needs to improve on that aspect.

I never thought that there will be anything like a whistleblower complaint against Infosys. But that has also happened?
This is sad. The company has been the benchmark for many of us and their disclosure norms are being questioned. However, I would like to wait and see as to how serious the whistleblower’s complaint against the practices of the company is. I would like to see that information coming in from the independent agencies. If they indeed played around with this particular subject as alleged in the whistleblower’s complaint, then it is a serious concern.

But if that is not the case, then there is a case for asking the regulator to probably tighten the norms of these whistleblowers because an anonymous letter going in and creating that kind of impact into the market and the sentiments of the people who have already been singed by corporate governance issues with many companies. Anybody and everybody cannot be walking away by putting across any kind of a letter and threaten the market and the investors. The worst is that a bear position was built in this particular counter.

Should anything materially be found out in this area of activity, it would be really be a concern. At this point of time, I would like to reserve my opinion given the past credentials of Infosys. I would like to allow the Infosys management to provide clarity. Should they not, then probably we have a reason to worry.
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