Nikunj Dalmia of ET Now talks with market experts KR Choksey, Chairman, KR Choksey Securities; Lalit Thakkar , MD, Angel Broking; and Vijay Kedia , MD, Kedia Securities for their views on the current market scenario, future outlook as well as their top picks.

The market is at 21000. Are the gains here to stay? What is your market big picture?

KR Choksey: Market picture remains because Indian economy is doing well and the world confidence has also increased in the Indian economy. So as the economy is likely to grow at 9%, there will be enough business for corporates.

What about valuations?

KR Choksey: One has to identify the stocks where there is a value because value-based investment is always a paying business and one should try to identify the companies which have not gone up and there is a value in them.

Characterise this particular bull market for us. Is this a young market or Indian markets right now or is this a mature bull market now?

KR Choksey: This appears to be a matured bull market because Indian economy after a long time has come to a stage where things are moving in the right direction. Investments are taking place in this economy and the world confidence has also gone up. Say for the first time, American President has come to India which indicates that India is now getting placed. This is a win-win situation for both America and India.

Talking about IDFC, Timken and Voltas, how are these stocks looking now?

KR Choksey: Voltas continues to do well because there is a lot of business taking place in this line - in the consumer goods industry. They are in the installation of plant and machinery.

Is Voltas a buy, sell or a hold?

KR Choksey: No, one should hold the stock because growth continues in this company because they are receiving a number of contracts and now they have added engineering side of the business.

What about Timken and IDFC?

KR Choksey: IDFC continues to be a very good story because it is financing in the infrastructure and power sector and the growth is continuing in this company. Investors who will invest for a longer time will definitely make good money.

What is your price target for Timken and IDFC?

KR Choksey: Timken basically is a company which is multinational. They are looking to buy back and delist the company, but the company is doing very well at the moment. It all depends upon the decision of the management.

So the 3 stocks you identified for our viewers, according to you, they still are a hold, not a sell?

KR Choksey: No.

What is your No. 1 stock idea for the next 6 to 12 months?

KR Choksey: There is a company called Supreme Petro which is in the field of plastic industry. They are in the line of polystyrene. This company - after a long time - has turned the corner and it appears that it is now on the track and on the growth path. Management of this company is Supreme Industries - one company which is highly successful. This company - it appears – has now turned a corner and will do well in the coming 2-3 years. This company has now started for the value added products and value added products will make them more stable in the time to come and over and above that, they have lined up a Rs 125-crore expansion programme, capital expenditure programme that will further expand their capacity. They have made a foreign collaboration and that will go into production next year.



What is your price target for Supreme Petro?

KR Choksey: In 1 year, it should go up by 50%.

50% in such a market?

KR Choksey: Yes.

What is your second idea?

KR Choksey: Second item is in the paper industry -- Tamil Nadu Newsprint. Popularly it is called TNPL.

It is a very old company, isn't it?

KR Choksey: This is an old company, but now it has come to a stage where the appreciation will be coming because this company has expanded the capacity without raising capitals. They have done very well this year. In the first 6 months, their earning per share is Rs 12. So full year, one can expect 24-25. But one additional thing that is going to happen in this company is that hey are expanding the paper capacity by 50% and that new plant is going into production buying.

What are your EPS estimates for FY11 and then FY12?

KR Choksey: FY11 it will be 27-28 and next year it will be 35.

What to your mind is the ideal PE band for TNPL?

KR Choksey: This stock is getting a re-rating. Till now, people were not looking at the paper industry, but this industry has started looking well and if this company makes Rs 35 next year, the price should go to Rs 250.

What is your third idea?

KR Choksey: Third idea is in auto and ancillary. Munjal Auto is one company which is manufacturing mufflers for 2 wheelers. Recently this company was having only Rs 10 crore capital. Last year, they made a gross profit of Rs 27.5 crore and earnings per share was Rs 15.

Do you personally own Munjal?

KR Choksey: Yes, they have put up 2 plants in the last quarter of 2010.

What is your price target for Munjal?

KR Choksey: Munjal Auto is now presently 145, it should cross Rs 200 in next 1 year because 2 things are happening in this company – they have doubled the capacity and it is available at a very reasonable price and recently they have received a contract for manufacturing petrol tank for Nano.

If you have to look at the 3 stocks you have identified and if you have to nail it down to 1, which is your favourite one?

KR Choksey: First 2 are our favourites - TNPL and Supreme Petro.

Munjal is more like a safe bet, isn't it?

KR Choksey: Yes, because that is an automobile ancillary. So the first two are definitely looking very good.

21000 on the ticker, mesmerising gains. What's next?

Lalit Thakkar: Of course India story has not ended. This peak also eventually is going to get crossed. But having said that, let's be realistic. Our markets are not trading cheap anymore. Now market is standing at 17 PE. So though I would like to see 21000 market, at the same time I am also sceptical that it should not go up from this level or so because that will lead to the beginning of the bubble valuations because at 17PE, India growth story also is fully captured. So that is the reason I like to see the markets being range-bound for the time being for next 3-4 months and then it can start the journey again.



Probably the right time for the market to move up will be April-March. So yes, in one sense I am happy also. At the same time, I will like to see the market at this level and it is a good thing that we are seeing a lot of dilution being happening at this juncture - the Coal IPO coming and then you have Power Grid also. So it is very important for the paper supply to come in. Though I have talked about that valuations are not cheap, but at the same time, it is not so expensive also that it warrants sell all and sit on cash strategy where investors who have bought the stocks and are holding it, they can continue to hold and a new investor to stagger his investment at this juncture.

Looking at the fact that QE2 will ensure that money will chase asset classes now, is it time to revisit commodity stocks, let's say, for the next 3 to 6 months?

Lalit Thakkar: If I look at the Brazil market, it is at all time high. At the same time if I look at our commodities, it looks like commodity should be a very good interesting bet at this juncture because most of the commodities are down by 30-40%. But at the same time, one should be very careful while picking up commodities because I do not expect them to touch this crazy valuation what they showed in 2007-2008. This is because in 2004 or 2005, the whole global GDP improved from 3% or 4% to 6% to 7% because of the recession in America in 2002. Because the whole world was globalised at that point of time, the interest rates came down globally and that led to a huge consumption growth which got the whole industry by surprise, the government by surprise.

So that is the reason that there was a shortage in mining capacity. But in the second round of big growth, most of the people right now are aware that emerging economy will be a very huge growth story. So I do not think anybody will be caught unaware. So if I look at the policies, I have seen lot of policy changes happening. For example, in Indonesia, it is not so difficult to broker a coal mine or to get some mines in Brazil. So this time I am not expecting a similar rise what I saw in commodities. But at this juncture if there are companies which are available at reasonable valuations who are going for backward integration - which I am seeing in some of the steel companies – those can be enacted to bet at this juncture.

What is looking interesting in terms of stocks for our retail investors now?

Lalit Thakkar: Markets are expensive to buy, by 5-10%. So there is a possibility that you might not make gains for the next 6 months. I would like to go for those companies which can give me 25% return. So even if I bought the stocks which are 10% expensive, I can end up with a 15% return. Valuation gets re-rated. So I will go for all 25% growth stories provided the valuations are in place. A stock which comes to my mind which I have always been talking about is Axis Bank. We know that the credit growth, the deposit growth for a very long period will grow at 20-22% per annum and within that, the private sectors are growing by 25 or 28. So a good handsome 25% compounding story is still available at reasonable valuation. It is trading at 30% discount to HDFC or if you look at the Sensex, it is trading at similar valuations. So why should not ride on these growth stories and stay for this for a long period?



Do you see that appreciation - 25% in Axis Bank- in the next 3 months, next 6 months?

Lalit Thakkar: Yes, on a continuous basis, provided the PE does not get re-rated which right now I do not think will get re-rated. Market may continue to remain at the same PE. What we do not want is further re-rating from these levels.

Can you tick mark two more ideas for us?

Lalit Thakkar: I like capital goods sector a lot because the capital goods sector - for a couple of years – have not shown growth and when they start growing again because of this full utilisation in the industries, they make up for the lost time. At this juncture, I find a lot of capital good stocks at a very attractive pace. If you look at this quarter, there are so many companies which have shown 25% growth rate - Blue Star, TIL.

But the favourite among them is Honeywell India. It is an MNC company. Usually this MNC company clocked in 12-13% EBITDA margin, but for some reason, the EBITDA margins have come down in this quarter. But this is an aberration, a good opportunity to look into. The stock is trading at hardly 14 times FY12 earnings which usually suited at 30% premium to Sensex. So it is one great story I am finding at this juncture.

Is Honeywell a value buy or this is more like a growth story?

Lalit Thakkar: If the PEs of the stocks are at 13-14, it fits into the value categories also and since they are growing by 22-25% per annum, they fit into the growth story also - both way.

Which is your third idea?

Lalit Thakkar: I will go for Mphasis BFL. I am seeing lot of scepticism the market is having on this stock about the conflict of interest of the parent company vis-à-vis subsidiary. But I saw a similar scepticism in the MNC pharma companies and the MNC pharma companies have given fabulous returns in the last 1-1.5 years. So the lesson that I have learnt is that if the valuations are in place, one should go for the MNC companies. So here I am getting Mphasis BFL on a one year forward. Just in the cash, it is trailing at a single digit PE. So it is a similar quantity what I saw in MNC pharma. I would like to go for it.

What is your price target there?

Lalit Thakkar: Without the stock getting re-rated also, one can get in 20-25% upside on this stock on a yearly basis. For some reason, if they are able to show better growth in the industry, probably you can say a re-rating on the stock also. Another interesting thing is that the management has passed some resolution some time back on the buyback. So if they announce something on this front - which is very likely because they will be sitting on cash which will be not less than 20% of the market cap - the stock can get re-rating. But I am not factoring a re-rating for the time being.



What are the chances the stock could delist? It is owned by HP now?

Lalit Thakkar: No, it is having weightage of 60%. The share is 60%. It will not be easy to bring to 75% and even if they go for it, the price they have to give is not less than 30-40% higher from the current level.

You have identified three stocks for us. If you have to zero it down to one, which one would you tick mark?

Lalit Thakkar: One will be too risky to bet on, but if that is the case, all the 3 are interesting. But then I will go for Axis Bank because it is no-brainer that the finance industry will grow by 20% per annum.

So buy all the three at these levels, isn't it?

Lalit Thakkar: Yes, 101%.

What are your disclosures?

Lalit Thakkar: I am holding the stock. Personally I have bought the stock and I have bought it for my clients also.

Have you bought all the three stocks?

Lalit Thakkar: Possibly at least two stocks or all the three.

At 20000, what is your sense? Are the gains here to stay?

Vijay Kedia: I am bullish on the market. It does not matter whether the index is 20000 or 22000 or 18000 if you have a long-term perspective which I have. So I do not give so much importance to the index on a daily or weekly basis or for that matter monthly basis. I am bullish and there is still more room to go.

If markets move up, you need earnings to expand, but earnings for the quarter gone by were looking very toppy, margins were coming under pressure. If you look at the aggregate number, the growth rate is slowing down now. Why are you bullish then?

Vijay Kedia: It depends on stock to stock because if you look at the entire market, then you may go wrong. I do not invest in a stock looking at the Sensex. I just see the overall market. If the overall market is good, we are in a bull market, then it does not matter. There must be many stocks which are underperforming, many stocks will be outperforming and the idea is to identify the stocks which can outperform the Sensex. So that is the mantra in the market.

What is your Sensex target for the next 3 years and next 5 years?

Vijay Kedia: I expect the Sensex to touch 1 lakh before 2020.

One lakh, that is 5 times from here?

Vijay Kedia: Yes, 5 times from here.

India is already a $1-trillion economy. Is it expected to go to 5 times?

Vijay Kedia: Of course it should be around 4 or 5 times by 2020.

But most market watchers are saying that at 20 PE multiple, Sensex is already trading above valuations. Why do you think it will be another 5 times from here?

Vijay Kedia: We have seen it in the past also. Whenever the market rises and whenever we are in a real bull market, PE ratio goes up to 25 also. So that is the system of the market. Sometimes it is overvalued, sometimes it is undervalued. Even if you calculate reasonable PE ratio of 20 or 22, even then we are reasonably priced. So I do not find this market as overbought and again, it depends on individual stocks. So there are plenty of stocks in the market which are available.



So if the market goes up, the index will go up 5 times from here, according to your prognosis. I am sure individual stocks would be up 10-15 times, isn't it?

Vijay Kedia: Should be, at least 5 times.

Which are the stocks you are betting on? Can you identify 3 ideas? We will start with your No. 1 pick for the next 3 years.

Vijay Kedia: My theme is very simple. I am banking on new domestic millionaire theory. There are so many Indians who are becoming and who are going to become millionaires in times to come or billionaires. Millionaires means Rs 1 million or Rs 2 million, I am not talking in dollar terms. So anybody who is making, suppose, Rs 10 lakh or Rs 20 lakh, the first thing he would like to have is his own house. So my theme starts from there.

Then he will approach a finance company like LIC Housing Finance which I was bullish since it was Rs 200-300. They will approach LIC Housing Finance. Then they will identify your builder. Then a company like Godrej Properties comes into the picture. So I have invested in Godrej Properties. Then the builder would like to decorate the house with some sanitaryware and all those things. Then say the sanitaryware comes into the picture where I have invested. Then white goods come into the picture like fridge, television or air conditioner, then Whirlpool comes into the picture. Similarly then everybody will need a cable TV, then Dish TV comes into the picture. Similarly every household sooner or later is going to have pipe natural gas in their houses. So a company like Indraprastha Gas comes into the picture.

You have identified names for us. Let's pluck out 3 best ideas. So Godrej Properties is one idea you are bullish on. What is your price target and then why?

Vijay Kedia: Price target is difficult to predict, but I expect this stock to give you handsome return in the next 3 to 5 years, could be 3 to 5 times.

Even though it is a real estate stock and nobody likes real estate stocks?

Vijay Kedia: Does not matter. People do like real estate stocks, at least they like real estate if they do not like real estate stocks. For the simple matter, model of working of this company is totally different than other construction companies. They are working on their model of joint venture where they do not have to invest any money into buying of a flat.

Are you buying Godrej Properties even at these levels? Is it personally in your portfolios?

Vijay Kedia: I can buy, I have not bought at this level. I do not have extra money to invest in the market. Otherwise I am a buyer even at this price.

What is the second idea?

Vijay Kedia: Second idea is Dish TV. I like this stock because every Indian household will have one cable connection in their house, whether it is Dish TV.

What is your price target there?

Vijay Kedia: Price target should be 3 to 5 times in 5 years.



Which is the third one?

Vijay Kedia: Third one is Indraprastha Gas.

It is a government company.

Vijay Kedia: It is a government company. The company belongs to GAIL. So it does not matter. It is okay.

The stock has already seen a run up, do you still like it?

Vijay Kedia: Yes, I do like it because still the penetration for piped natural gas in India is very minimal. It could be around 1% or 2%. I do not know. It is miniscule. So that is why I think that ultimately time is going to come where every household should have it. I am bullish on Indraprastha Gas.

From the 3 stocks that you have identified for us, can you tick mark the one where you have the strongest developed conviction?

Vijay Kedia: It is difficult to define.

So can we say buy all the 3 at these levels?

Vijay Kedia: Yes, I can buy.

Would you advise that to our retail viewers?

Vijay Kedia: Yes, I can buy personally. I do not advise, but I personally like and would buy if I have spare money. I have already invested in these stocks. If I have extra money, further money if I have to invest, I can invest in these stocks.
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