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Why Deven Choksey continues to bet on ICICI Bank, SBI and Bajaj Finance

In the NBFC space, we have always liked housing finance companies (HFCs) and some of the companies have been performing better. They have been continuing to grow at around 20% in an environment where GDP growth is below 5%. If your growth rate is 20% plus and the credit book is growing, it is a good proposition to buy into.

ET Now|
Last Updated: Jan 21, 2020, 01.16 PM IST
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Retail credit focussed NBFCs as well as corporate banks where they have the ability to plug in their credit properly and measure the risk systematically would be relatively less risky and have a higher amount of growth to talk about, says Deven R Choksey, MD, KR Choksey Investment Managers. Excerpts from an interview with ETNOW.


Markets were unhappy to see the slight pressure on the NPA front for some of the banks. What would you be doing with Kotak Mahindra Bank for example?
The Kotak Mahindra Bank result on the face of it is quite satisfactory. They also came out with the highest-ever NIM in this particular quarter. This means the bank is managing its operations well.

On the other side, there is concern on two aspects; a) the increase in NPA and b)slower credit growth. In my view, the increase in NPA is largely a factor of the current economic situation and that is the reason they are going a little slow on credit growth.

At the same time, the user has a better opportunity to buy money now from different sources including the debt product and commercial papers. So, that has possibly affected the banks performance or maybe outlook in the near term. I do not think fundamentally many things are getting affected beyond a point. The credit cycle is possibly reviving. We are likely to see better offtake of credit including the working capital segment in the last quarter of the financial year by the corporates.

So, business remains steady. The conservatism that they have employed for protecting the NPA related situation has resulted in a slower credit growth which is justified. In my view, the current correction in prices could be an opportunity to buy into the stock because they sit on a brilliant prospect of monetisation of some other verticals going forward. I would consider this correction a good opportunity to buy the stock.

We have seen a good set of numbers from Canara Home Finance. Asset quality also seems to be stable. Some of these plays look more attractive now than perhaps some of the overbought bigger private names?
In the NBFC space, we have always liked housing finance companies (HFCs) and some of the companies have been performing better. They have been continuing to grow at around 20% which is not bad in the environment we are operating currently, where the GDP itself is below 5%. If your growth rate is 20% plus and the credit book is growing, it is a good proposition to buy into.

Some of the top-rung HFCs are a little expensive but that is likely to be the situation because they manage quality on the lending side well and so obviously premium goes to them. On the other side, we like retail credit focussed NBFCs as well as corporate banks where they have the ability to plug in their credit properly and measure the risk systematically, recovering the money after the lending at a faster speed because these are short-tenure products.

I think such businesses would be relatively less risky and at the same time, would have a higher amount of growth to talk about.

One could possibly include the retail-focussed banks like ICICI and even SBI and Bajaj Finance on NBFC side. These fit well into this kind of environment where technology is used extensively and at the same time, risk is measured properly. Though expensive, these are better picks compared to others.

Are the markets excited about Tata Global Beverages’ tea business, coffee business or the fact that they will become a food company now that part of Tata Chemical food business will be merged into it?
We have a study on this particular company and we find that it makes sense to merge the consumer business of Tata Chemicals into Tata Global. The quality franchise in the form of tea and other food products would probably allow them to create more touch points with customers. The distribution network probably is already established. I think profit sharing would take place between the two but product supply and the marketing company will remain till the time integration takes place. So, that would be a little bit of a challenge.

I agree that on one hand, potential-wise it becomes a huge play and currently more people may be buying into the story because they want to buy into consumer facing companies. That is where this company gets registered into the portfolio. It may be expensive but when fund allocation takes place into such kind of stories, you end up buying some of the expensive stocks and ride the momentum and this is what is currently happening.

After a lull of two years, in the coming three to four years, we are likely to see more such activity. The irrational aspects of the valuation will continue and more funds will go into some of the stocks where the story is relatively more appealing or more interesting.

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