Changing the profile of portfolio stocks : Kohli

“We have just increased the allocation to ICICI Bank in one of our portfolios. HDFC Bank, ICICI Bank are part of our portfolios. We are continuing with them. We believe that although the numbers are improving, asset quality is improving but stock price has not shown a very good movement to buy. When the selling from FIIs stop, then these stocks will perform because the numbers are there,” says Daljeet Singh Kohli, CIO, Stockaxis.com.

Have you been a buyer in the last three days of the rebound that one has seen or is still wondering how long this is going to last?
We have started nibbling a little in these two, three days of recovery. We have added one or two in finance and some places we have increased the allocation. Yes, our view still remains that we are not out of the woods and probably it will take some more time for the markets to really start their uptrend again. We will have to wait for that.

Besides the Russia Ukraine war, the bigger issue which would drive the market will be the Fed action. Every day, we are seeing all these volatile movements on expectations of what the Fed will do, whether it will go for 25 bps or 50 bps or what will be their commentary. It is better to wait for that on the 15 when they actually come out with the commentary and even then, things may not be very clear and maybe we will have to wait for one more policy action which will be in the next two months.

In the next two, three months, we will still have a lot of opportunities to buy. There is no fear of missing out, there is no hurry to jump on to the first opportunity. We may have to pay a slightly higher price but that is still better than going all out now. We are going with small allocations.

What is it that you are making of the broader market recovery because while it may not be across-the-board, the segments which have actually held out have seen a sharper move as opposed to what some of the largecap sectors have done. I was just looking at auto ancillaries and pharmaceuticals. Some of the speciality chemical names have seen a very strong rebound and that can be said about the sugar sector as well. A case in point is Balrampur Chini today or a GNFC or Atul Ltd or a Laurus Labs. Do you find any of these stocks attractive?
Balrampur Chini is part of our various portfolios and it has been a call since quite a few months now and from Rs 340 odd onwards we started adding. We are quite bullish on the sugar sector as a whole because of the two important reasons. One is that sugar is no more a cyclical story or a weather related story because with the new ethanol policy, has almost taken cyclicality out of the sector, just like what Brazil market does – whether you want to continue with ethanol or want to go for sugar.

For the sugar industry as such this is a very big game changer and all these companies whether it is Dwarikesh or Balrampur Chini are doing a lot of investments in ethanol capacity. They have been our favourite picks for quite some time and we have them in our portfolios.

Regarding specialty chemical and other places where we have seen this sharp rebound, that was more to do with the way they had fallen als. Stocks like Deepak Nitrite has fallen from Rs 3,000 to Rs 2,000. Obviously we will see that kind of bounce back also once sanity or buying behaviour returns in these stocks.

Coming to auto ancillaries, these stocks were more tuned towards Europe and other western markets. They took a very sharp beating and have also reverted back. So it is more to do with knee-jerk reaction of selling at the negative news and now with the news receding a little bit, buying has started again. But we are not taking a call on those stocks.

We are actually changing the profile of our portfolio stocks more towards those with two years, three years horizon rather than just three months, six months horizon which was the case one and a half years back. Now, there is a total change in the thinking for portfolio construction.

As far as the pharma space is concerned, any particular pocket that you like – whether diagnostics or hospitals or manufacturers?
In the pharma space, we have a couple of stocks in our portfolios. In the hospital space, we like Max Healthcare. We have had it in our portfolio for six-eight months or more. Then we had Apollo Hospital which we booked out of a few months back.

On the manufacturers side, we have Gland Pharma which we believe has a unique model of injectables. Most of its products find space in the shortages of medicine in the US as per the FDA list. Secondly, it has an incredible track record of FDA compliance. Gland Pharma therefore is always our top priority and that is part of our portfolios. We are looking for smaller pharma companies and some midcap pharma companies but that work is still going on. We intend to add one or two in the next few months.

What about some of these platform companies? We have the exchanges which are moving up in trade – BSE, MCX as well as CDSL. Would you extend that argument to the likes of Policybazaar, etc, also? We have seen a few upgrades happening given the value correction that we have seen on all of these new-age tech companies.
It is quite surprising why BSE has moved 20% on Thursday and 10% on Friday. I have not been able to find any reason whatsoever why this stock has moved so much. CDSL moving up is okay. One can say LIC IPO will come, there will be more addition but that concept will be there for ages. The penetration level in India is very low and that everybody knows. But for the stock to move 10-20% in a day, there has to be some driver.

We are now actually moving away from these high valuation multiple, growth momentum stocks and moving only towards value that too with some visibility of earnings. So, all these things are out of our portfolios. We never had them in any case in our portfolios but we are not looking at them also.

Do you see value in the banking space then because that also has corrected quite a bit and in terms of the fundamentals, apart from the fact that the Street is talking about how credit growth might be a tad bit slower. It still gives a decent enough opportunity to perhaps nibble into that sector now?
Yes it does and in fact we have just increased the allocation to ICICI Bank in one of our portfolios. HDFC Bank, ICICI Bank are part of our portfolios. We are continuing with them. We believe that although the numbers are improving, asset quality is improving but stock price has not shown a very good movement to buy. When the selling from FIIs stop, then these stocks will perform because the numbers are there.

So for the last three-four quarters, all these banks have shown good strength and good numbers asset quality wise as well as growth wise. Credit growth picks up as and when the economy picks up and these are the ones who will be the first one to take that market share. So it is a good time to look for such opportunities. We have added and we are increasing the allocation also.

With names like Maruti having shaved off about 18.6% in the last one week and Tata Motors 16% off, is there opportunity to pick these names at the current levels?
Yes. Tata Motors is part of our portfolio already and we added in Tata Motors which we look more as an electric vehicle play, less of traditional automobile. We like the way the company has been progressing well on its operation efficiencies both in domestic as well as JLR front. Tata Motors qualifies for an investment for a longer term horizon.

In the case of Maruti, there is month on month improvement on the production side. On the demand side, they did not have too many problems. It was more to do with the supply side issue because of the semiconductors which we have seen improving a little bit but with all these Russia-Ukraine issues again, that might get a little more hammered.

But I think at Rs 6,500-7,000 Maruti offers an attractive valuation and one can look for adding it. We have not yet added it in our portfolios but we have it in the trading portfolios. But in the investment portfolio too, we will be looking at it.