Portfolio manager PN Vijay of askpnvijay.com is relieved of an agreement having been reached in the US to avoid the fiscal cliff that came close to sending the Indian market into a tailspin.
He explains on CNBC-TV18 that the Indian economy and market in 2013 will be led by domestic economic factors such as falling interest rate, boost in corporate earnings, high industrial production and steady GDP growth.
Vijay adds that real estate will do well this year chiefly on interest rates and increasing in housing demand.
Below is the edited transcript of Vijay's analysis on CNBC-TV18
Q: It seems like the US government has hashed out a plan to avoid slipping into recession, at least for now. How will the Indian market react and how long do you think this trigger will last?
A: It was a great relief to see the Americans reach some sort of a deal and though the contours of such a deal are not clear, it sure to give a rousing start to the first day of trading in 2013. To my mind, the fiscal cliff issue was more a worry as it would have reintroduced some heavy doses of taxation and curbed spending which would have stymied the good pace of growth in the US.
With the fiscal cliff no longer present, there will be a considerable amount of relief and satisfaction among investors and the feel good factor should hold on for a few days. Going forward, there is tremendous hope in India, driven by lower interest rates and probably some strong policy initiatives from the central government. We may see a strong recovery in growth. So that should underpin the Indian stock market in 2013.
In the last five years- 2008 was bad, 2009 was good, 2010 and 2011 were bad and 2012 has been good. So out of five years, the economy fared badly in three bad years and is still below the high reached in early 2008. With the market not having moved anywhere five years down the road, there is a basic fundamental argument for a correction of the marketcap to gross domestic product (GDP) ratio.
The GDP has gone up nominally by 13-14 percent every year and the economy is about as twice as big as it was in early 2008. There is a lot of catching-up for the market to do with the economy. But the movement of the market in 2013 is going to depend on domestic economic factors. I think Europe and US would be sideshows- they would add volatility, but the long-term trends would be set by domestic economic factors.
Q: The dark horse of the year gone by was real estate and now the sector seems to be performing well as indicated by a few Delhi stocks as well. Would you start buying realty now?
A: A month ago I forecasted that the time is right to selectively enter real estate. The good performance in 2012 has to be seen in the backdrop of the overall performance in the last five years. Stocks like Unitech, even today, are quoting 15-20 percent of their peak value. HDIL is still at Rs 600. So realty stocks have a long way to go. My sense is that real estate will do well this year driven mainly by the interest rates and the demand for housing.
The office segment will still be quite soft because there are a lot of occupancy problems. Malls will do well because of various factors. But on the whole, real will have a decent year. The micro-market that looks most interesting is Bangalore because that is there where there is a clear growth in demand, firmness in pricing and capacity of developers to execute and complete projects. I would not be so bullish about New Delhi or National Capital Region (NCR) where I think the over supply is still the maximum.
Q: You track Godrej Consumer Products. So what do you make of the news that the company has decided to acquire another brand for about 21 million pounds?
A: I do track Godrej Consumer Products but it is not my top fast-moving consumer goods (FMCG) pick, which I reserve for ITC. The whole group of Godrej has been building strength. Godrej Industries has put lot of investment into venues over the last three-to-four years afrer Godrej Consumer sold most of its key brands durring a contraction in business to Hindustan Unilever and other companies. They are now rebuilding and some of the initiatives in 2012 involved acquisition of brands .
Indian brand acquisitions are very expensive. Having some knowledge of global and domestic acquisitions the sales at multiple at which Indian brands are brought at about three-four sales multiple whereas globally brands are available at twice multiple or even 1.5 times sales multiple.
So from that point of view, global acquisitions would be better for them since there is scarcity domestically and lots of people are after it. But on the whole Godrej Consumer would be one of the better stocks to track in the Indian FMCG space.
Q: Could more pressure be seen on Kingfisher Airlines this morning?
A: It depends so much on events, isn’t it, whether the Directorate General of Civil Aviation (DGCA) will give them back the licence, whether the cash inflow will take place? So far we are assuming that with the Diageo funds coming in, Mallya will bailout the airline. But there are many imponderables. I think the first picking has been made in Kingfisher and one has to be lot more watchful for the next picking.