Where to invest among crude sensitives in volatile market? Deven Choksey answers

Deven Choksey, MD, DRChoksey FinServ, says after an initial surge, crude oil prices are stable at $65 a barrel, derivative companies are poised for significant gains due to predictable input costs, fostering margin confidence and growth opportunities. Chemical and construction sectors anticipate expansion, particularly in regions recovering from conflict, potentially boosting commodity markets. Low crude oil prices create favorable conditions for various commodities.

What is your view on Dixon Technologies?
Deven Choksey: Tracking from outside, we never got inside this particular company. On one hand, this company has been doing amazing work in terms of tying up with various joint ventures which are also importing technology into them and on the other hand, they are taking care of their marquee customers.

So, it’s a fantastic combination, where on one hand, the giants of the world are their partners, on the other hand, the customers are also their partners.. Unfortunately, I could not invest in this particular kind of business, largely because the margin in this business has always remained very small and that has been a concern, especially if you are buying the stock at a very fancy valuation.

When I say fancy valuation, I am talking about a 70 to 120 times price earnings ratio in this kind of business. Now whether one wants to buy this in the name of growth, I do not know but I feel that if it is so expensive, one should buy it at a time when market gives an opportunity. In between, the market did give opportunity in the last six or seven months. Otherwise, one is not getting very comfortable buying something which is very expensive at this level.

Fundamentally, out of this entire basket of crude sensitives and crude dependent stocks, what is looking good right now? Would you be placing your money on tyres? Would it be paints, chemicals, fertilisers, or would you be sticking to these downstream oil companies?
Deven Choksey: You keep the price of crude oil at $65 to a barrel and most of the derivative companies which are using crude oil derivatives, are going to be in a significantly large beneficiary position. You mentioned some of those names and they are the right names to start with because when your input costs remain predictably low, in such a situation, your business starts giving you not only the confidence in the margin, but at the same time, there is also further expansion for growth.

Fortunately, most of the chemical and chemical-oriented businesses, which are using chemicals as a substance, are talking about growth and should this ceasefire related situation persist for a good, then in such a situation, construction activity would start in those countries where the destruction has taken place. In my viewpoint, every single commodity would probably have relatively better times and crude oil price remaining low is a very good moment for those commodities.

What are you making of the entire infra space? Now with everything that has been happening geopolitically, we have barely even spoken about infra in the last couple of weeks. But what do you believe is the road ahead for infra and any subsectors or pockets from this theme that you like at the moment?
Deven Choksey: Yes, extremely bullish about the growth and the prospects going forward as well. The road, the airports, the seaports included railways and at the same time the power and power utilities in which a large amount of investment is going from the government side is basically suggesting that we are making something very large going forward. We particularly like the port business. We also like the integrated logistic business wherein all the transportation sectors converge and ultimately allow the goods and services to move in and out from that particular location. We like the logistic services which are inclusive. At the same time, we find power and power utilities more interesting.

I believe that the next 10 years or so are going to see significantly large growth for power, power utilities given the kind of programme that we are executing on the renewable side included. So, if the blend of 40% is becoming a reality in the next 5 to 10 years as far as the power blend is concerned between convention and the new source of power, the transmission and distribution companies are going to equally benefit out of that. Some of the power finance companies particularly are going to be interestingly positioned. So, there is a case to remain bullish on it and selective opportunities are definitely available in the market at this point of time as well.

What is your take on KPIT as well as the overall IT pack right now?
Deven Choksey: In the mid-tier IT companies including engineering R&D companies like KPIT, long-term prospects are not denied. They have potential and we are positive, because given the size of the market they are catering to. We are confident that in the next three to five years, when the situation becomes conducive, these companies are likely to fetch a significantly large amount of orders.

However, there are major challenges and the company talks about it in terms of near future because the customers are not placing enough orders even though they are ready to place orders, they are not placing it and as a result of it the visibility of execution is not emerging. KPIT in particular has corrected from the price but at the same time it is still a price evaluation. All said and done, if the growth is not there, it will hurt. So, in my viewpoint, that is the catch

If the market gives opportunity at lower levels for this kind of nervousness from lack of growth, it will be a buy opportunity because long-term prospects are fantastic and at the same time, one is looking forward to this kind of opportunity in the market when the stock price comes down because of near-term hurdles or the headwinds.