BTTV Exlclusive: Deven Choksey's preferred top bets; flags midcap valuation risk

Deven Choksey, Managing Director of DR Choksey FinServ, believes the Indian stock market remains selectively attractive, supported by better-than-expected earnings, returning foreign investor participation and sustained domestic buying. He said investors should focus on quality companies available at reasonable valuations, with large-cap stocks offering a relatively safer opportunity compared with richly valued mid- and small-caps.  

Earnings, FPI flows support market Choksey said the first-quarter earnings season has been encouraging despite a challenging operating environment, with no major negative surprises so far. He also noted signs of foreign portfolio investors returning to Indian equities after remaining cautious for an extended period.

Domestic investors, meanwhile, continue to support small- and mid-cap stocks, keeping the broader market on an upward trajectory. However, Choksey cautioned that valuations in these segments have run ahead of fundamentals.

“Good quality stocks when they are available at neglected valuation, it's time to buy them into the portfolio,” he said, favouring large-cap companies where valuations remain relatively more comfortable.

Rupee remains key risk According to Choksey, currency weakness remains one of the key concerns for the market. He said the rupee needs to stabilise and potentially return towards the Rs 91-a-dollar level to reduce vulnerability.

While he believes much of the currency-related damage has already occurred, further weakness could create challenges for the broader market.

Banking stocks look attractive Choksey remains particularly positive on the banking sector, citing attractive valuations, improving credit growth and stronger-than-expected earnings.

He said rising business activity and increasing working-capital requirements among corporates are supporting demand for bank credit. Global trade uncertainties have also lengthened logistics and working-capital cycles, increasing funding requirements for businesses.

Retail consumption remains healthy as well, supporting large NBFCs and private-sector banks with strong retail exposure. Overall, Choksey sees banking stocks as among the more promising segments given the combination of valuations and expected credit growth.

LIC downside largely priced in On Life Insurance Corporation of India, Choksey said the company's fundamentals remain robust and believes much of the downside is already reflected in its valuation. He highlighted the company's embedded value-to-EBITDA ratio, which he said has fallen below one.

However, he flagged a key overhang: continued share supply in the market could limit upside potential and weigh on investor conviction.

Despite this, Choksey maintained that while the market may remain disappointing in the near term, the underlying earnings performance of companies remains stronger.

Overall, he advised investors to remain selective, favouring fundamentally strong large-cap stocks at attractive valuations while exercising caution in expensive mid- and small-cap counters.