Investment advisor PN Vijay says volatility was the big issue in this market but a look at small cap and midcap indicates that the market breadth has improved. Today one is happy that things seem to be very much under control and we are back to probably normal days.
Excerpts from CNBC - TV18's exclusive interview with PN Vijay:
How have you read it, as relative strength or as a sign of weakness from the market yesterday?
It is interesting that when the market is down about 175 points we are not unhappy. It has been the story; last one month has been so volatile. The reason for some sort of negative satisfaction of today's trading is that the volatility has come down considerably. Volatility was the big issue in this market. The breadth of the market appears to improve if you saw the smallcap and the midcap indicators.
So there is a semblance of normalcy and stock picking, which is actually the core of investing, is back. I am not too worried that we are losing a percent or two, that's normal in any market and globally markets are weak. But today one is happy that things seem to be very much under control and we are back to probably normal days.
Some amount of pullback has happened in the midcap space but when you look at the businesses that you track. Do you think they could pullback some more? There could be some juice left there in the bounce back?
The pullback, which we have had in the midcap, is nothing compared to the potential of these stocks. For example, some of the stocks that we like are Bharat Earth Movers, has fallen to Rs 800 levels, lost 50% for no business reason and that pullbacks to Rs 900. So that is a case where stocks have gone up but nowhere near their intrinsic value, which are DCF or so.
Any thoughts on couple of sectors in the way they are going to shape up from here? Technology and banking?
Banking is easy; it is going to have slightly trouble days; the good ones will continue to make money; banks never lose money unless they make bad loans like they did in Latin America in Seventies. But the profitability is definitely under pressure, nobody can deny it. The capital adequacy norms are getting tightened, the RBI has been increasing the rate weightages on some of their meaty loans like real estate, personal loans etc. So going forward with interest rates, I do not see any great profit growth in the entire banking sector.
Regarding technology, more and more people are getting bullish about IT; it did not do much in last couple of years in the bull market. But now the rupee having depreciated to this level and these companies continuing to deliver good earnings; probably going forward the weightage for IT would have to improve in the days to come.
Would you pick up anything in the aviation space even a Jet Airways at about Rs 660 now?
Probably. The reason some of us actually don't look at Jet Airways at all, apart from the fact that the aviation industry was getting extremely competitive, was the Sahara acquisition, which over a time reduced value. But if that acquisition is getting dropped then Jet as standalone carrier is a very class player. They have gone out into trunk routes, international routes, where they are doing quite well and they have landing rights in major cities. So why not because this is an unbelievable low price we have for Jet around current levels. It may be and aggressive investment but worth looking at.
Did you look at today's listing- Prime Focus?
I did, it is an interesting company. The IPO market has taken such a hit that some of the stocks, which were very good and had got priced out, out of their valuations; and this stock Prime Focus could be one of them.
How do you play sugar now, because after the fall there has been some amount of a pull back but do you think these stocks can support high levels in their pullback?
I believe so, if one looks at Balrampur Chini, for example, it was trading at Rs 200 and went below Rs 100 and the same happened to Bajaj Hindustan, some of the blue chips in the sector.
If one looks at the sector, then there is consensus among all the people including the government with what's going to happen to the sector. Next year may not be as fantastic as they had the last two years because the demand-supply imbalance is gradually getting corrected. But the prices would still be firm.
So the stories in sugar are good. There is no great uncertainty except that one feels these shares are very volatile and investors get put off by the volatility but someone with 1-2 year timeframe can pick up the blue chips.
Your thoughts on Tata Tele?
Right through this bull market that share has not performed well at all. No punter has even taken up a smallcap stock like this. The bottomline is still the issue. The company has been making so many statements but as long as the losses are there I would, if I have aggressiveness into Telecom, join the Reliance bandwagon with all this talk about GSM than Tata Tele.
What do you see for the overall market now while clearly interest has
The market may move into a quieter period. June has traditionally been a holiday period; we may slip into that at least for a couple of weeks. People know that there is a bit of under valuation in this market after the great fall considering the corporate growth.
But people are not prepared to put that extra money right now, they are waiting for perhaps another fall. We may get into a range but I think we will have fireworks going from middle of July. Because corporate earnings and a good monsoon may provide the trigger for the continuation of the bull market.
Both for retail and for HNI are they just waiting for lower levels or are they still concerned about where this
market might move?
I do not know if jitters are out. But when I talk to people, they are still sort of worried about where are we going, because the shot they had from middle of May till now is unbelievable, it is just the bottom fell. The HNIs are coming back. Incidentally the HNIs for whom the shares are not the only assets they have. They are more relaxed and they are also into properties. But the retail investors are still very cagey about entering the market and they would require a lot more persuasion to come in.
What would you do with large caps now? Do you see value there?
I think there is value in some of them. In the FMCG pack Hindustan Lever has presented good investment opportunity. Our clients pick up large caps definitely. Indian Hotels, BHEL, even Maruti Udyog is looking good and all the good things are happening there. The stock has corrected and it has recovered only about one third of its gains. I think the large cap still would perform well but incrementally I think midcap will take over as the days go by.
What do you do with a smaller cement companies now, India Cement and Mysore Cement?
Among the commodities cement counter is looking the safest now. India Cement touched 240 before it just fell off. Same happened with Mysore cement, it came to early 30s. These are pretty large companies and we are not talking about companies with one or two million tones of capacity. Both are operating in the South where the demand has been very strong and growing at a very decent rate.
Both these companies might be midcap in the stock market but in the real world they are fairly large companies. Of course they are for the investors who can understand volatility because they are very volatile stocks in the stock market.
What would you do with realty pack now?
In the realty pack one needs to make up the mind whether they believe in the Indian real estate story or not. If they think it is a lot of talk, they shouldn't be invested (punt a little bit and run away).
If they believe it is an asset class, real estate is probably as good or better than the stock market then obviously they have to keep their interest. Then one needs to wait for sharp corrections and keep slowly adding. If somebody is convinced that Indian real estate is a great story, demographic story for the next five years one should buy a portfolio of stocks like Mahindra Gesco, Unitech, DLF when it comes out and just keep it.
My view personally is that real estate is really changing the face of India. If one look at the middle level cities, a lot of things are happening there and early movers were able to get this township etc and it may become very attractive investments.
What do you expect to see from the global space now because today we haven't collapsed under the weight of global cues? Do you think we can slowly begin to de-link ourselves or that remains the key risk over the next few weeks?
That is one risk because global cues are slightly negative, especially from the US, while India's story is more positive. If one were to de-link, India would benefit. The bigger question mark for me though is whether the Indian economy will keep up the scotching pace because there are some little rumblings in the macro economy, which are being talked about by moguls of the world almost everyday.
They are burgeoning current account deficit, the impact on the Rupee, domestic interest rates and so on.
If all that adds to a slightly flatter growth rate of 7% or so, then there is no cause for making India look like the hero of the pack. India is just one more emerging market. There is an incipient concern that the Indian growth story may become flat now, due to whatever reasons, the petrol prices, etc.
But right now, the Indian growth story remains the most positive and cues from America come as negative for the Indian stock markets.
Disclosures?
Yes, we have positions in sugar stocks, some of the midcaps like Bharat Earth Movers and Bharat Electronics, and some of the bluechips like ITC, BHEL, Tata Motors and Maruti.
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