Dalelorenzo's GDI Blog
19May/210

Is it time to sit on cash? Deven Choksey answers

Be particularly selective while including some of those midcaps and small caps into your portfolio and ensure that the exposure is pleasant enough to allow an exit at a given point in time of epoch, says Deven R Choksey, MD, KR Choksey Investment Managers. Why is there so much frenzy in the mid and the smallcap space when the economic fundamentals are looking slightly uncertain because of the second curve? Most of the time, we see that a class of actors are basically looking at the large cap corporations which includes the larger part of allocation of Indian mutual funds and also the ETFs which typically concentrate on the largecap companies. The largecap corporations have had a splendid operate last year. On the other side, the domestic investors -- the PMSes, some of the AIFs which are operating in the rolled marketplaces and the HNIs -- are typically looking at opportunities in the mid and big sized fellowships. They are cozy with the limited market cap. However, their load would be extremely heavy when they deploy a significant amount of funds into these stocks. At the same epoch FOMO( the concerns of missing out) is driving merchants to jump into this particular trade leading to very rich valuation. I am not against the midcap and smallcap furnishes. Some of them are probably appreciated exactly because of the sheer liquidity part and a demand draw which is coming into the market. One will have to be extremely selective while including of those midcaps and small caps into their portfolio and ensure that the exposure is comfortable enough to allow an outlet at a given point in time of experience. What are you buying? Is it time to go against the crowd and foster cash in the mid and the small cap space? The mandatory is clear that those companies which are weak in fundamentals and which are likely to like the bandwidth and are more vulnerable to the situation like high costs in the economy and the input overhead plus of those companies with sizably gigantic segment of customers who could possibly not allow them to increase their rates, are among the most vulnerable firms. So the direction is very clear that as and when you get an opportunity to get out of those companies, do it and probably stay in cash for some time. Likewise keep investing into the companies where the business is looking larger and bigger going forward. For example, we believe that automobiles especially are currently not in favour but maybe with expected good monsoon and demand retrieval as the healthcare economy is improving with more vaccination down the road, automobile and automobile ancillary sphere is looking a better selection from the second half point of view. Currently they are available at better valuations. Similarly, life insurance businesses where the amount of payments have started increasing because of the protection factor are again available at a reasonably good valuation. One could buy these assets on troughs. In IT, one should own the digital space. IT is available at relatively cheaper valuation along with some select pharma. So yes, selective meanings within this basket are something which we consider in this market. Bharti Airtel earnings were pretty much in line. Your view.There are a couple of things. One, their African operation has been rendering a good quantity of cash flow. Of track, something which is basically about monetisation we retain aside because it is a regular ingredient. But the operations are contributing a good quantity of cash flow which is fundamentally important as their India operation needs more cash inputs. In Africa, they are generating surplus cash flow and Africa is 30% of the overall consolidated receipt of Bharti Airtel. So from that perspective, it is very significant. Secondly, 10% of Bharti Airtel’s valuation belonging to Africa but it contributes around 30% of the consolidated income. In my view, if there is a possibility of improvement in the stock price, it could come from that part and soon the company probably may want to monetise their stake in Africa. It are potentially add to this trend that the standalone sector balance sheets in India could require more because of the new airwaves which they have acquired and at the same time, 5G implementation would probably require more cash flow. All in all, they are relatively better off. They are breathing well. A mint will have to be seen as to how they generate additional revenue streams and from their India operation for the purposes of the capex procedure. That is one area which will keep the stock tolls a little bit under check but otherwise African operation is the key factor. But why are Bharti ARPUs not improving? India operations surely remains a challenge for the company. They require a significantly higher amount of money. If the company has to move from being a mobile company to a digital busines, then in such different situations, a lot of corrective approaches will have to come into play, including the infrastructure which is required to run a digital busines. Fortunately ,, the company has started merging some of the businesses which they have been keeping outside the company till now. This could give them a little better handle to operate. However, having said that, the brand-new 5G spectrum buying along with the 4G range that they bought and the liability from the Supreme Court judgement -- all together is representing it very clear that the next two, three years is going to see substantial capex by Bharti. That will mean an increase in debt and that is where people will not be very comfortable with the company. In this case, Jio would be better because they are moving with a couple of strategies; on one side mobility emphatically is strong and at the same time fibre to home under the digital strategy is working well. Fibre to enterprise along with separate vertical focus and the banking connectivity registers Jio is probably moving faster on the digital model compared to Bharti. So the preference would definitely be on Jio because they have completed the larger part of the capex programme which Bharti would take another two, three years to complete.

Read more: economictimes.indiatimes.com

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