Prime Wealth Mgmt bullish on media, cap goods

TS Anantakrishnan, Head of Prime Wealth Management sees 14-15% earnings growth. He is bullish on media and some capital goods stocks and other sectors like logistics as well as shipping. He is bearish on real estate and interest rate sectors. He likes Reliance and Punj Lloyd the best.

Excerpts from CNBC-TV18's exclusive interview with TS Anantakrishnan:

Q: What is the call now? We have seen so much of global mess and equities across the globe melting away. What is the call?

A: One has to be selective. The markets were all euphoric in January and they over shot. We were trading at a 22-23 times forward earnings and now we are trading at around 11-12 times, depending upon what estimates one takes. Even if you take 10% of earnings growth, you are trading on a historically lower level than ever before. So, as far as the corporate earnings are concerned, the companies themselves have not come out and mentioned that there would be a downgrade in their earnings per se. So, one has to wait and see how the first quarter earnings pan out. There will be an EBDITA cut or a profit margin cut. But whether the cuts would be such that the valuations are justified or overdone remains to be seen.

From a historical perspective, we feel the valuations are quite reasonable. Companies are available at less than 10 times their PE and even an EBDITA of 2 or 3.

Q: Is that a valuation story?

A: Yes. There are two sides: one is the valuation side and the other is the sentiment side. We are going through a PE compression. The question now becomes whether it is all in the market.

The earnings have been downgraded and some people have talked about 10% of earnings growth. We have been looking at about a 14-15% earnings growth and others have been talking about 20% of earnings growth. We have been talking about it in terms of FII flows coming in at lower levels and that has been happening through this year. But at the some time, FDI flows have increased tremendously. From 4.6 we have gone to 15.9. Volatility, which was over 50% three weeks ago, has now come down to 40%.

Q: Are you buying?

A: We have been very selective in what we buy. We are not allocating completely but doing a 20% allocation. We are waiting to see how the markets pan out and form our perspective. The valuations look good and the sentiment would return. It may perhaps happen in 3-6 months. But if we have a long-term orientation then the valuations at this point are the best.

Q: There are some global negatives that are probably waiting to happen or at least that is the cue you are getting when you are looking at the Fannie Mae-Freddie Mac developments or perhaps outside that in the commercial and in the investment bank area. Would you therefore wait to say that something much bigger and nastier could happen? We are sensing some kind of political problems in our own domestic sphere. Even if July 22 is tided, the next elections and the kind of confusion it might throw will remain a question mark. Would you say that there is a long lean patch ahead?

A: Its difficult to say at this point in time. A political risk, a downgrade from Fitch or the US dollar depreciating and crude and commodity prices continuing to go up are all possible factors. If one looks at the PE and the inverse of the yield, look at the companies that are less than the inverse of the yield. If one looks at six-months time-frame, we are at 12% looking at the PEs of the companies at less than 8%

Q: Where are you selectively buying right now?

A: We have seen value in media and some capital goods given the recent fall.

We like Reliance at these levels and have investments in various other sectors like logistics as well as shipping.

Q: Tell us some of the capital goods companies that you like?

A: From a portfolio stand point, the valuations of Punj Lloyd at this point are quite reasonable. We have gone and looked at various other companies, whether it is an HCC or an IVRCL. So, from our perspectiv,e among all of them we like Punj Lloyd the best.

Q: What about the much beaten down real estate and interest rate sectors?

A: We are not looking at those sectors.

Disclosures:

We have been having positions in the stocks that we mentioned and in some cases we have also exited.