Mkt uptrend resuming, see index at 5,300: PN Vijay

Portfolio Manager PN Vijay said the market uptrend is resuming. “Today, gave a confirmation of that. I see the index closer to 5,300 than 4,500.”

Excerpts from CNBC-TV18’s exclusive interview with PN Vijay:

Q: We have just been meandering through the week but today looked like a pretty solid session, what did you make of it?

A: Yes, it is a very good session indeed. For the first time, we saw some of the old economy stocks like BHEL, L&T, and Reliance Industries and even some banks like Punjab National Bank driving the uptrend. So far, we have been into a middling market, where leadership has been taken by very under owned sectors like IT and to some extent pharma. Today, we saw some heavy buying in old economy stocks. For the past few days, I have been saying that the market had substantially discounted most negative news on the macro and bargain, or low level buying, should emerge. I am happy it did.

Q: What did you make of the kind of sectors that were leading the momentum this time around? Does it seem like now interest is coming back to spaces like capital goods and real estate and may be even private sector banking?

A: Today, it seemed to be so. If one saw the index biggies which went up today, they were all shares which have been very much under the weather in the last 4-5 weeks. Even ICICI Bank, for example, which had been very much being discounted because of possible loan losses and hardening of interest rates, rallied nicely. I don’t know if this is a permanent trend, but after a long time we are seeing heavy buying in tracks that reflect the domestic economy.

Q: The problem up until now has been the lack of conviction. How high would you rate the chances that in this month we make some kind of move to break this range we have gotten into?

A: A pretty good chance unless the macros worsen. We fell in March very badly because the macro seem to be deteriorating. We had very bad inflation figures and RBI tightened the money supply. So, people have to get the conviction that this stage is passed and at least we are going to a period of inflation going down. Once that happens, the big money will have the conviction. If one wants to be an early bird, one could increase exposure because inflation and interest rates would tend to soften from now on.

Q: Are you surprised by the way the currency has been moving and is there still some more room for technology after the run it has had?

A: RBI has decided that enough is enough. The rupee is totally managed by the RBI by supply and taking out dollars, so the central bank felt it was desirable as the rupee was getting too strong. They let it go till about 42.50. Now, for the first time they have decided to strengthen the rupee by selling huge dollar reserves that they have.

But the perception about IT has changed. It is the most under-owned sector probably in the entire Indian stock market. If one takes a look at mutual fund portfolios, they have really downsized in IT. So, there will be more and more entrants that would want to keep at least about 4-5% of IT in their portfolios. From that point of view, two of the biggies have run up but I see this rally continuing.

Q: Aside from the impact on the technology space, do you think there might be a rethink on how flows will move over the next few months, if the rupee is to indeed remain subdued?

A: People wait for a depreciation on the currency and then move in, because they are happy if the currency has depreciated and they would get more. But they don’t want to invest into a depreciating currency. I wouldn’t have been surprised the way the rupee fell very sharply from 39.50 to 42.50.

People may have held back certain investments that they thought they would like to make. If the FIIs start feeling okay that the rupee-dollar has stabilised, then they may put in the money.

The depreciating currency is inversely correlated to how things are moving. So, as long as the rupee is not depreciating, it will be neutral to flows.

Q: What have you made of the Satyam case? Do you think an overhang on the stock is justified for a few days till there is clarity?

A: It would be because it is an event and we really don’t know how hard Satyam’s bottomline is going to be hit by this. It has got a revenue implication, which is almost like an NPA for a bank.

Satyam has been really riding high. It is being another of the biggest gainers among stocks in the last three-months. I wouldn’t be surprised if many investors try to book the profits. So, things are very negative for Satyam right now.   

Q: What do you make of the sudden interest in the base metal universe? Would you start looking at that pocket?

A: We were not looking at base metals at all. We has sort of taken it off our portfolio. But what we have seen in aluminium is surprising.

I don’t know whether this is related to specific events like the sudden spurt in Chinese demand because it seems that they are under a bit of surplus given the global slowdown. But if they go on like this for some more time, we will have to start looking at the base metals. They are really coming back into their own in the last few days.