Seeing bottom-fishing in power, banking stks: PN Vijay

Q: How are you reading this as a pullback and essentially a rangebound market or are you more optimistic than that? 

A: I am definitely more optimistic than I was a few days ago. It is interesting that on Friday we had a terrible inflation figure more than 8.7%. Then we had a Reserve Bank of India (RBI) action later in the evening. The market has taken both those pretty well. It has gone up about 3%-4% after that which means that two things are happening definitely the bears are covering the shorts. This market has seen tremendous shorting by everybody in the last four months. So the shorts are getting to some extent covered and maybe some bottomfishing in totally beaten down sectors, the rate sensitives, the capital goods; there has been across the board buying power and yesterday, we saw banking. So it is possible that we maybe looking at a bottom though I think we need to spend some more time around this area before we can say that the patient is out of the Intensive Care Unit (ICU). 

Q: Is this bottom fishing more apparent in midcap universe and is there a specific pocket you would lean towards from the midcap lot now?

A: I would say that the bottomfishing is confined to the midcap surely because the action we have seen in Bharat Heavy Electricals Ltd (BHEL), Larsen & Toubro (L&T), HDFC Bank and other bluechips is definitely solid. The midcap pharma especially the CRAMS (Custom Research and Manufacturing Services) space is seeing excellent activity. One is of course the falling rupee and second business models of these people. After the way Ranbaxy sort of rammed itself in the headlines everybody looking at pharma and he midcap pharma among the midcap seems a nice place to be in. 

Q: What do you like in midcap pharma if you can think of 2-3 stocks, which represent value to you in that basket?

A: In the midcap pharma CRAMS space, for example Dishman is a great stock. They have gone in a big way into an inorganic growth in the CRAMS space, which is a high technology, high research driven space. And the market is not fully valued that. So one could buy into Dishman as a research cum export story, one could also look at Nicholas, Jubilant and DVS but to my mind right now I think Dishman appears the best. 

Q: Would you be buying PSU banks right now or you do not see too much of an upside in the near-term?

A: It is a very tough call, the general market perception is to sell into the strength because everybody is very negative about PSU banks. But generally being a contrarion by nature if you solve the advance tax payments of the PSU bank it was fantastic. 35%-40% above and that is an internal number that comes out and the Net Interest Margins (NIMs) did hold up in the last quarter. So much of this fear is theoretical and it is not getting reflected in the balancesheets. Though the fear is genuine, so perhaps better is to wait for one-quarter results, see what is the hit on the investment portfolio and then get into them. That would be very brave to get in now but let us not write off that sector as many people are.   

Q: You have been bullish on sugar but not quite so bullish on fertilizers. How do you look at these two opportunities now? 

A: Two months ago I changed my view on sugar from neutral to positive because talking to sugar magnates one gets a feeling that they are smiling after a long time. The demand-supply situation is changing quite dramatically in the country and the huge movement in acreage to wheat and rice from sugar is going to have stole on the supply side in '08-'09 crushing. So whatever be the global scenario the pricing power will come back to the sugar mills. They have all got beaten down anyway; so on a one-year timeframe sugar is good. Fertilizer is also not bad considering some of the moves the government has done on the fertilizers but when there is so much government control no serious institutional investor comes into those stocks. I have seen that they are very worried about the ad hoc in the government policy, as we have seen in the oil marketing companies etc. So I will still keep a distance from fertilizers.