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If YES Bank fails to raise money, expect a domino effect on market: Deven R Choksey

Investors would see value if YES is committed to take corrective actions, says Choksey.

ET Now|
Updated: Dec 10, 2019, 03.48 PM IST
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If YES Bank is committed to do corrective actions, the investors would see the value and come into the bank and so let us hope for the best. Let us not start thinking about that, says Deven R Choksey, MD, KR Choksey Investment Managers. Excerpts from an interview with ETNOW.

If YES Bank, in the most unforeseen eventuality, is unable to raise money, would that spell bad news for the overall market per se?
On one side, they definitely require the capitalisation to happen. Whatever provisioning the bank has done and will be doing, needs to be taken care of. At the same time, the money coming into the books of the bank would mean that their lending activity will continue.

If they end up getting less or weak response, that would be a problem for the bank because with growth in the economy picking up, the entire programme for reviving the bank is required to be funded and at this point of time if the funding is not available, it would lose favour in the market. It is going to be a tricky situation for YES Bank. Having denied money from a true source of investors, they will have to work harder to get the right kind of investors into the bank’s portfolio to bring back the growth momentum which they have been missing for the last few quarters.

If YES Bank is committed to do corrective actions, the investors would see the value and could come into the bank and so let us hope for the best.

Let’s assume that YES Bank failed to raise capital. What happens to the banking sector? What happens then to the lenders or to the firms or companies that YES Bank currently has given a credit line?
If it happens, then you can expect a domino effect on different parties connected to this particular subject. May be, the bank should fail at this point of time. If they are committed to do corrective actions, the investors would see the value and come into the bank and so let us hope for the best. Let us not start thinking about that. If it does fail, it is going to be a pain point for many and it is difficult to quantify that at one go.

What are markets telling you?
The market is wary of the infrastructure segment. On one side, the companies are receiving more orders. On the other side, the payments are being delayed by the government. The confidence level of the investor is down. Unless and until, the payment cycle is made regular, the infrastructure companies cannot deliver the kind of orders that they have taken into account and that is a problem area.

The problems need to be addressed sooner than later because the amount spent on infrastructure ultimately results in higher consumption in the economy, if it reaches the last mile. If the money is not coming in the hands of the companies, there will also be a challenge for the economy to revive. That is the reason companies like L&T are not finding favour at this point of time.
From 15th of December onwards, the market is expected to have muted activities and that is where you are seeing a lower participation.

-Deven Choksey



Markets are looking a little weak. We are still holding fort on the index, but the latest AMFI data has been showing weaker sentiment. Markets are unable to follow through at this point. Where do you see the turn coming in?
The last two months -- October and November -- have seen inflow of money both from the domestic source of investors as well as from the global investors. The global investors largely came in through the ETFs and expectedly played around with the lower valuations in the market while buying equity from the market. But this momentum cannot sustain for the simple reason that the flow of money in a quick succession results into rally in the market which makes valuations expensive and that is what one has started seeing.

In fact, hardly a few stocks led this rally and they are very expensive. Obviously, the overall market is not participating. Typically, ETFs would put more weight where they see higher returns. The entire market is not participating in this kind of rally. The market might take a breather for a while. As such, from the 15th of December onwards, the market is expected to have muted activities and that is where you are seeing a lower participation.

I do not think that fundamentally things have changed beyond a point. They are what they were at one point of time and at the same time, the January-March quarter appears to be relatively more promising than before. Certainly the flow will return to the market.

Over the last few days, telecom sector has been incredibly bearish. IT had a brief respite. If you are sitting on the sidelines, some near-term triggers will be needed to get the sentiment going once again. Which are the pockets that you are eyeing?
The horizon has become quite narrowed. We stay focused with insurance companies. We focus on some of the large corporate banks, AMC companies and a couple of retail NBFC companies where we feel relatively confident that they have got the right model to operate.

This is the only space we are focused on now largely because elsewhere, a significant amount of ifs and buts and problems are continuing. Any revival in the auto industry, especially in commercial vehicles segment, is going to be a gradual process. Commercial vehicle makers like Ashok Leyland remains in the list as far as the stock pick is concerned, but otherwise the horizon has narrowed down quite a bit.

On one side, one would expect that with infrastructure projects coming up, one should see a larger amount of traction in the commodity space and in engineering companies. Unfortunately, the payment cycle is very badly affected. These companies are struggling to recover their money and that is where our confidence level remains a little muted. So, we are currently focussing on where the certainty is and so we are buying some of the financial companies at a premium for the safety factor.

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