Q: What do you expect the stock to do in the near-term?

A: I think it would mildly be an under-performer of some sorts. It depends on how the deal is finally structured, whether it is coming out to the balance sheet of Tata Motors directly or not. Frankly it really does not matter because it will impact the balance sheet some way or the other, but if it’s kind of some what ring fenced, you could get away with the fact that it may not get consolidated and so on. In this case, at least notionally, you would have some reason to say that the stock is somewhat cheap.

But if it is consolidated, I think you will have some serious problems because the only bet that seems to have been taken is that the new models would be extremely successful and will turn around the fortunes of the company, which given that nothing has changed other than the ownership, would tend to be that, what Ford has just done is grossly stupid.

Q: How would you position yourself in the private banking space now after their fall and the subsequent pullback?

A: Banking is again one of the few sectors which is attracting interest on the larger cap universe. So I would imagine that you would go back to companies like HDFC, HDFC Bank, IDFC, and Axis and so on, those are the perennial favourites. Again, on a trading basis only, because I think if you are looking for real value it is probably in the smaller private sector banks, the older private sector banks, but that may take a long time to actually realize given the overall mood in the market. But clearly if you are looking for value, it’s not in the names I just mentioned, but on a trading basis they are likely to give you the best move right now.

Q: What about IT, we have had a pullback in frontline and midcap IT. Do you think it’s sustainable?

A: The newsflow will continue to remain negative. I think the downside seems to be factored in, in terms of current known numbers. Again, the larger ones probably have greater resilience in terms of the business model and are also relatively more attractive than some of the smaller companies. So if at all you want to be in the IT space, the safer bet is a larger cap. The smaller companies can actually move rapidly, but then are likely to be much more volatile. You have assume that order cancellations or order delays will actually come through in many of the cases, especially those dependent on the BFSI segment.

Q: Your feeling is that we do not have too much upside from here. What kind of a broad range would you expect to see the index in, in the near-term, next one or month or so during earning season?

A: I think one thing is for sure that it’s going to remain volatile because I think earnings for many of the companies will be reasonably decent. But it’s not necessary that it is going to get extended for the next quarter. So when the earnings come, it is likely that you will get a spike. So overall, I would think that you are still capped at maybe a 1000 points more on the Sensex from here, at which point of time you would be starting to look at 16 times FY09 earnings. That I think, in the current market mood, would be about maximum and I see that you would get it in the next few weeks.

Q: What is your gut feeling about this earning season, there are lots of apprehensions, there is an annual guidance from IT companies. Do you expect positive surprises because there were not too many positive surprises in the previous quarter? What do you think April will be like?

A: I do not see too many chances of a positive surprise, I think if at all there is some surprises, it maybe on the downside. I am expecting that the derivatives injuries will extend to the midcap companies as well. Some of the larger companies at least have announced whatever they had to, I think many of the smaller companies have taken a bath, which has not yet been openly discussed. So to that extent, I think many of them will actually throw out some negative surprises.

At best, I think the only place you could perhaps look at some kind of a positive surprise maybe on the IT, but that also is somewhat remote. I think the big negative areas could be construction, some real estate companies, because I am sure they will find it difficult not have been able to do the replacements to actually generate near-term revenues. So some of those could actually surprise big time on the negative.

Q: What do you do with some of these infrastructure plays like L&T, Punj Lloyd, JP Associates now?

A: It depends on the scenario you are comfortable with. Frankly I think we are still in a bull market, I don’t think any of these are reflecting bear market scenario in spite of the fact that they have fallen off almost 50% from the top.

Just because the rally was very strong, it does not mean that they have still reached value stage. So purely, on the valuation basis, you are still factoring in a very strong economic growth and you are factoring in continuous availability of money at reasonable prices.

I think the key joker in the pack will continued to receive capital at low rates of interest because that is what determines whether infrastructure projects can be financed profitably or not. If you are with the scenario that you will continue to get that, then I think these are good points to buy. The scenario you also have to consider however, is that interest rates may actually move up in the international markets and/or availability of money maybe more difficult. In this case many of the infrastructure projects would have to put back on the shelf because you cannot finance them at 15-16% rates of interest, which maybe a possibility in the near-term, in which case there is not that much value.

So again, a trading range remains. I don’t think I would go out and say that they are aggressive buys. If you are an optimist then I think it is a good point to start entering many of them because you are assuming that money will continue to remain available.  

Disclosures:

It is safe to assume that my clients & I may have an interest in the stocks/sectors discussed.