Investment advisor PN Vijay says that for the first time in many days, the market is looking at corporate news. In the last few months, the markets have been very worried about concerns of inflation and the central bank's response to inflation and interest rates, some of the macro things and oil prices, he says.
He adds that institutional interest has not come back that much and it is really a trickle compared to what we had in the beginning of the year. He thinks that the big thing that happened was when the US Fed Chairman went to the Congress and said that he was sort-of practically through with his rate increase.
Excerpts from CNBC-TV18's exclusive interview with PN Vijay:
Is it time now to go in and get long in the markets? Do you think certain thresholds have been breached and that gives you the courage to go and buy?
I have not been a great seller anyway. I think, for the first time in many days, the market is looking at corporate news. In the last few months, the markets have been very worried about concerns of inflation and the central bank's response to inflation and interest rates, some of the macro things and oil prices.
Today one is clearly seeing very strong corporate numbers coming across sectors. So the markets are sort of celebrating that. We just need to see whether this bottom-up approach towards investing will take the retail investors out of the gloom and doom.
Has the market set out a clear direction for you though?
If we are talking about a one year direction, I am quite comfortable that the market is spending some desirable time around these levels because the markets have run away too much and has lost it and it came down all the way to 9,000.
I am not unduly concerned if the market is running 10,000 levels for a month or two. I still feel that for a sense of direction, we need something more than what we are seeing now. We need a clear indication that some of the macro fears like high inflation and rising interest rates have been capped. Then the corporate fundamentals will take over. I think that will probably happen closer to October.
What about the ONGC results? The profits are up nearly 25%.
ONGC's results are unfortunately not written in Mumbai High, but in the corridors of power in the government; because even though they get import parity for their explored oil, they get so much of subsidy every now and then.
The news is that the government is wanting to get more out of PSUs, it is going for bonuses and stock splits and higher dividends to manage the deficit.
We have news in BHEL now and there is probably something coming up in ONGC. So all that got investors quite excited. Having said that, one has to be very careful about ONGC because the fortunes are not really driven by the fundamentals here.
What do you think has the turned the tide in the past three days?
Institutional interest has not come back that much. It is really a trickle compared to what we had in the beginning of the year. I think the big thing that happened was when the US Fed Chairman went to the Congress and said that he was sort-of practically through with his rate increase.
That really set people looking for a cap on interest rates. Once that went through and BoJ says it wouldn't do anything till December and in India even though the RBI did increase the repo rate and the finance minister said that there is enough money going around, all this has contributed to clearing the air on the macros.
Clearly the micros have always been there, the corporate fundamentals have been very strong in India for quite some time now.
Do you worry that some of the price rise we are seeing in this week could be F&O related ? Would you advise that one should wait until Friday or Monday before we could judge the strength of this rally?
That is a very perceptible point. The F&O positions do affect the cash market a lot, so why should one rush in here. Markets are not going to run away. But I am happy that different sectors are showing so much strength.
There was a lot of pessimism about the autos and Tata Motors has come with very strong numbers and Bharti also. So there is enough ammunition for bulls and new derivative settlements.
There were concerns about what the Q1 would throw up but on a scale of 1-10 how would you read the earnings that have come in this time?
So far, seven or eight because I think that the technology was very strong, metal was better than one thought, auto has also been slightly better than one thought, I didn't expect such good numbers from Tata Motors. So we are doing all right. Some other side counters like Bharti Airtel and all have been coming with strong numbers.
So, so far I would say that if at all the Q1 numbers should give a trend to the market, it is to support the bulls,
What about the capital goods especially amongst that BEML because you track that stock quite carefully, what did you make of their numbers?
This quarter was okay, the profits were okay, the topline was rather flat, the trouble at Bharat Earth Movers Ltd BEML is that the earnings get very lumpy because their main customer is Coal India and they have a long-term contract with them where the pricing is very complex and the payments are very complex, so that is very typical of the capital goods industry.
So one needs to take a slightly longer-term perspective, what gladdens me about that stock also is that the order book for the Wagon division, which used to be the sick child is now very robust with more and more cities and it going in for the metro. So all in all, I would say that at about Rs 800, the downside in this company is practically zero.
What do you make of Bharti Airtel's results? Do you think that most of it is already in the price?
Probably not, because Bharti has been a very quiet counter for the last three-four months and the market was sort of thinking that some of their plans would hit them hard in terms of the bottomline.
In order to keep the market share going, they were taking a few pricing risks but clearly the results today have shown that their strategies have not hit the bottomline, so it is possible that investors who would say, I like the company but not the stock, may probably jump in.
What would you do with the Tata Teleservices (Maharashtra)?
I have been very bearish on Tata Teleservices (Maharashtra) for the last couple of years. Right through this bull market, it has not been able to cross Rs 30 level. I think that people want to see some blue somewhere in this company. It was the old huge fixed line, which the Tatas took over.
They have not been able to bring in the profit, though they have many new ideas for the company and with so much happening in Reliance Communication and MTNL is also beginning to look up, I think that even aggressive investors are preferring those stocks to Tata Teleservices (Maharashtra). It still continues to disappoint most investors.
If indeed a rate hike doesn't come on August 8 when the FOMC, Federal Open Market Committee, actually meets, do you think that would provide a fairly big kicker, what kind of a rally would you see?
Markets will be on fire if the Fed stops increasing interest rates, the euphoria will run through the stock markets and India will get swept through and I would then surely expect the market to cross the previous high.
There is no doubt about that because corporate profits are in place and India is definitely going to grow. The economy is at anything between 7.5% and 8% and inflation will be around 5-5.5%, so the Indian story is sort-of mostly understood. So this could be a great global trigger.
What are your thoughts on banking and the big moves that have come into these stocks?
That sector is extremely complex to analyse. Conventional wisdom would indicate that firming interest rates would create problems for the sector because of the depreciation of some of their security portfolios and slackening of demand for their main product, which is money.
I think the market has discounted most of that and some of these banks have become extremely attractive in valuation terms, book values, dividend yields etc. Right now I don't think one should put too much of banks in ones portfolio. From six months now, these banks can report pretty good numbers.
Do you have any favorites in that space?
Bank of India has a very good price to book ratio also. They are extremely attractive. My favorites in this sector remain the big ones like State Bank of India and HDFC bank.
Do you think interest and momentum is slowly coming to the midcap space?
Probably. If one sees the last six to seven months, the large caps have clearly outperformed the midcaps, which means that institutional interest in the stock market has been much more than the retail interest.
My sense is that market has to come out of this whole trading range, which it has gone into and the retail investors should have that nice feel-good factor again as they had early this year for the midcap index to out perform the Sensex. What we are seeing is very strong buying in selective stocks.
By the end of August, do you think this market will be trading at closer to 11,000 or 10,000?
I think it should be closer to 11,000 even if the Fed does interest rates by 25 bps.
Disclosures:
We have Bharti , Deccan Chronicle, SRF in some of our portfolios.
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