In an interview to CNBC-TV18 portfolio manager PN Vijay shared reading and outlook on the market. The Nifty has been listless over the last few sessions, but global markets are in a strong position with the Dow closing above 14,000 for the first time since October 12, 2007. With this close, the Dow is now less than 200 points away from closing at an all time high.
According to Vijay, profit-booking and PSU disinvestments sucking away domestic liquidity are two main reasons for the lackluster market. However, he expects sentiment to revive on the back of positive global cues and budget-related announcements like rollout of the goods and services tax (GST).
Below is the edited transcript of his interview to CNBC-TV18
Q: What’s sapping the market of energy?
A: I think one reason could be that we have had a very good run in the last 8 weeks and a lot of profit-booking is taking place. The other is that the slew of public sector undertakings (PSU) disinvestments is sucking away a lot of domestic money.
We saw that last year also. The big domestic players like Life Insurance Corporation of India (LIC) are selling across the board in a secondary market, to invest in the primary market. This may continue for some time because we have big-ticket PSU disinvestments on the cards.
It is also possible that the sentiment may quickly revive because of global cues. Sue to some budget-related announcements, like the goods and services tax (GST) rollout is becoming a fact of life one sees.
So, these macro changes could bug the market again, as they did a few months ago. However, right now it is liquidity. Domestic institutions selling and people are selling the news. Once the Reserve Bank of India (RBI) came in with the rate cuts then the results are substantially out of the way. People are not finding any news to really buy into stocks.
A: Not really now. BHEL has been an expected disappointment. Even in the big rally we had in the large-caps, BHEL didn’t participate at all. Every rise is leading to fresh selling. BHEL has almost become some sort of synonymous with India’s infrastructure success story.
Now that the infrastructure story has turned sour BHEL is the biggest loser, the order inflows are totally anemic and have gone down. I can’t imagine a capital goods company with a production cycle of three to four years working on such a low orders to sales ratio. So, BHEL still has a long way to go before investors start getting attracted to it.
Crompton has also been a middling-type of thing. There are risk takers, who would buy this, but I don’t fall into that category. The overseas acquisitions are taking their toll, for example Havells or somebody in the same period and space would see such a huge difference.
Crompton has time to reinvent itself and take a lot of time about it. So, I wouldn’t really buy into these two arguments.
Q: Aside from Larsen & Toubro (L&T) then what would you buy from that entire bracket?
A: Nothing really. It is not mandatory that one should be in every space. There were times when we were zero in real estate. Investment is about risks and rewards. There is no clarity on the windscreen in infrastructure. In infrastructure people are returning contracts, which they had paid a premium.
In power for example many of the owners of power companies are frustrated that they are not getting the coal linkage where they have already signed the agreements. So, these are very huge problems. Government is trying to get its act together.
As investors in the stock market we would like to see something actually happening. A couple of quarters’ positive results before we enter such an important sector like infrastructure. So, right now, apart from L&T, one is not at all bullish on this sector.
Q: What would you do with Tata Motors now?
A: Tata Motors ofcourse corrected on that freak trade etc. Still it is not my preferred pick in the auto space. Some are getting converted to the Jaguar Land Rover (JLR) story once more after blips we had. So, Tata Motors is at best a hold because it ran up a lot then it has corrected. It is at best a hold. We really like Mahindra and Mahindra (M&M), which has fared quite badly on the bourses in the last three to four months inspite of coming out with very fine numbers.
In Maruti, the margins are terrific. Right now, these two are preferred stocks. Not that one is writing Tata Motors off, but one would like to see some more action on the domestic front too, apart from JLR to really buy into that stock.
Q: How would you approach the whole oil space now?
A: Among all the turnaround sectors, I am most bullish on oil marketing companies (OMCs). Firstly, because they are under-owned, secondly, their replacement cost is extremely high as compared to their current market capitalisation. Thirdly, the government seems to have a strategy in place to gradually get them off the hook and it seems to be working.
One hardly got any headline protest when the government went out and said it is planning to increase the diesel prices by about 50 paise every month. So, if they get away with that not only will it help the fisc, but all three of them Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL) have responded favorably. However, as they say in America "you haven't seen anything yet". I wouldn't be surprised if they give even 30-40 per cent returns in the next one year.