The next key trigger for the stock market will be the fourth quarter results, says portfolio manager PN Vijay.
Though the market is now trading around its lows, he is confident that the Indian stock market would stick to the 15 percent growth figure in the next 12 months, he said in an interview to CNBC-TV18.
In the coming week, investors should keep an eye on CAD data followed by Infosys earnings and IIP data.
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Below is the edited transcript of the interview
Q: It is a horrible spot that the market is in, but let us discuss some good things, like the sugar sector and how it has moved today. Would you incrementally expect these sugar stocks to move or do you think most of the good news is already factored in the price?
A: Some big moves have taken place, but if you compare the levels these stocks were at say three years ago, they have been quite decimated. They are still at about 25 percent of what they were. So, the scope up is high.
This decontrol is a partial decontrol in the sense that the selling side has been decontrolled in terms that the horrible quantitative release mechanism has been removed, which means that players can plan their working capital and cash flows much better and then the levy sugar – that small percentage, which used to be there has been removed.
Government will pick up the subsidy and buy from the open market. So, these are two big things. But two bigger things, which have been left untouched in my view are that registered cane area – the states still have the power to notify and de-notify cane areas and the second and the most important thing is the price paid to the farmers.
What would happen is now we will find a big difference between different sugar units, their capacity to hoard, to looking for better prices, their capacity to negotiate with the state governments for better prices and the attitude of Uttar Pradesh (UP) versus Maharashtra versus Tamil Nadu and so on.
So, it will be almost impossible for us to look at the sugar pack in one breadth. Any decontrol is positive for business. So, I would not really go gaga about it. I would go about accumulating my sugar stocks after studying the impact company-by-company.
Q: Did you just hear the news about the possibility that money laundering is not something the Reserve Bank of India (RBI) found in the three private banks and it was just flouting of some amount of KYC norms. Would that give you some amount of relief?
A: Surely relief, because money laundering by the banks is a very serious offence. The sections under money laundering act elicit criminal prosecution of the people involved. We have very strong money laundering laws in the country now. Know your client (KYC) is different and the private banks would have a good case if they said the KYC – they are actually acting as brokers. It is a different matter the private banks make most of their money doing broking and not banking. Their officers go about selling insurance and mutual fund products, but the banks will take the view.
We are just a broker or a distributor if you want to call it and the KYC is done by the eventual entity, which is the mutual fund and the insurance firm. The form that’s filed up is that of a mutual fund or insurance firm. Hypothetically if I say the bank did the KYC would Birla Sunlife accept that KYC, it would not, isn’t it? So, the KYC charge of RBI may also wears thin in the light of existing regulations. So, if this was a cloud over these banks the cloud has gone and to that extent there should be a relief rally.
Q: Would you buy Maruti in anticipation of further weakness in the yen and the impact it would have on Maruti’s margins?
A: Maruti is a strong buy at these levels. In fact it stands out as perhaps the best auto stock. The reasons are two-fold. One is the Bank of Japan (BoJ) is doing a calculated depreciation of the yen for the last month. It just announced another fresh bout of weakening the yen to make Japanese exports more competitive, to attract investments into Japan and really spur that moribund economy. Since Maruti invoices a lot of its imports and many of its products are really Completely Knocked Down (CKDs) – that should have a very good impact because most of it sales are in Indian rupees and US dollars.
Secondly, if you see last month’s sales, Maruti is about the only company that is bucking the trend. If you take that view, Maruti is about the only listed company whose fortunes swing with consumption in the economy and the others swing more with the investment, industrial production and agriculture in the economy. This again lead one to the conclusion Maruti is a strong buy. The management is good. So, Maruti at about Rs 1,400 or Rs 1,410 level is quite a strong buy in my view.
Q: Do you expect to see any kind of support at these levels of around 5500 or do you think that because of the complete apathy in terms of buying, this market might sort of see a slow and steady grind to perhaps even the September lows?
A: Markets have a way of surprising all of us. When every analyst is shouting ‘sell’ and reduce positions, that’s when the market takes off. Its done that too often in the past for me to fall into that trap. I would say that the markets are somewhere around its lows and probably the next quarter results are very important. If we get decent results from private sector banks, then the markets may rally. I have not suddenly turned bearish compared to bullish from last 10 days, I am still very confident that we would stick to that 15 percent growth in the Indian stock market in the next 12 months. The next big trigger would be the fourth quarter results.
Q: What is your expectation in terms of data points next week and which one do you think would be the most important that the markets could react to?
A: The Index of Industrial Production (IIP) will not be a much of a surprise because the core sector has already shown us that it is going to be quite bad. The current account deficit (CAD) would be interesting because the CAD really deteriorated to 6.7 percent,, which is a historic low. Whether there is an improvement in the CAD and what is the annual figure of CAD is very important because there is a strong linkage between CAD, currency, fiscal deficit and the stock market, so that is the figure we will watch.
From the micro market, Infosys is significant because apart from being a company by itself it sets the trend for the IT sector and also sets the mood and sentiment for the rest of the market for at least the next 15 days. So in order of priority, CAD is the most important, followed by Infosys and then some passing interest in the IIP data.