Oct 16, 2012 07:37 PM IST | Source: CNBC-TV18

Retail investor pessimism leading to volatility: PN Vijay

PN Vijay said the market clearly is in an uptrend as it is making good highs backed by improving fundamentals. However, retail investor pessimism is leading to some volatility, he added.

Despite positive global cues Indian equity benchmarks plummeted in the last couple of hours of trade and the Nifty closed at 5648. The Sensex on the other hand, shed more than 100 points to end the day at 18,577.

Sudarshan Sukhani of termed the day as a disappointing one. He said, "Nifty remains in a trading range. The trading range is purely 5,640 and 5,730 and inside the trading range we have seen a lot of volatility. Traders who are positioned on either side of the market, up or down, long or short should keep with their positions while the index remains choppy inside this range. There is no purpose in switching positions repeatedly. So if you are short 5,730 is your stop loss, if you are long then 5,640 is your stop loss." He further advises investors against taking new positions.

PN Vijay said the market clearly is in an uptrend as it is making good highs backed by improving fundamentals. However, retail investor pessimism is leading to some volatility, he added.

Vijay further added thatAxis Bank's results yesterday have pleasantly surprised and therefore, he remains positive on the stock. According to him, the financial stocks looks most promising at the moment and something like ICICI Bank, LIC Housing or REC would be excellent bets.

Here is the edited transcript of the interview on CNBC-TV18.

Q: Is this just a minor roadblock in an up trending market or do you see this as a start of perhaps a little bit of a pullback from here?

A: The uptrend is clearly there and there's no doubt about that. We are making good highs backed by improving fundamentals which is the key. However, there is fair amount of retail investor pessimism that is obvious while most of the calls from institution and institution brokerages have been highly positive. We are seeing at every rise, retail investors come in a big way and sell off stocks. That is leading to this extreme volatility.

But on the whole, I think if you looked at the macros, inflation for example, we had good inflation number if you took away 3.5 percent rise in fuel which contributes about 20 percent, you almost had a 7 percent inflation yesterday after that diesel price, LPG hike all of us wanted. IIP also was not too bad. We are seeing improving fundamentals and so far corporate earnings have not disappointed, they have been reasonable to good.

I don't see anything in the fundamentals that will make anybody press the sell button or press the panic button. But surely there is a fair amount of pessimism. This type of profit booking and high level of retail investor pessimismis frequent at the start of a bull rally.

Q: What about Axis Bank's numbers? Those were pretty positive on the upside, were you pleasantly surprised with the asset quality performance this time?

A: Axis Bank numbers are pleasantly surprising. There are two components to Axis Bank's results, one is the basic profitability in terms of net interest margins, net interest income and growth in advances etc. which have always been the strong point of that bank. They have always managed to grow profitably. The Achilles' heel for Axis Bank has been the asset quality.

Suddenly in the last two quarters we have been getting worried. Normally, we don't get worried about the asset quality of private sector banks, but fortunately the impairment was very little. The asset quality was very good and no wonder even in a weak market today, Axis Bank has been strong. I will still keep my faith in Axis Bank, which remains one of the best place in the private sector banks with regard to valuation and price hike.

Q: If the uptrend is still intact for the market, whenever we see a dip where would you go ahead and buy with respect to frontliners, any 2-3 stocks that you can identify for us?

A: Right now the financials look the best because there is clearly a move towards falling interest rates. Whether the RBI does it through a CRR or a rate cut, rates of the market are coming down both for deposits and advances. This is excellent news for financials whether they are banks or NBFCs.

Among the banks, I would say ICICI Bank has got a very good growth whose results are yet to come, whose NPAs are improving and would be an excellent bet. Among other financials, one could pick LIC housing, REC and many of those strong stocks which are leaders in their particular segment of financing.

If one wants to buy on decline, the best is to play the rate sensitives and among them the financials.


Q: How exactly would you play the rate sensitives ahead of October 30, 2012 policy i.e. banks, infrastructure and possibly autos, especially autos considering something like an M&M is down around 3 percent odd today?

A: Autos are not just rate sensitive, they are also demand sensitive because rates and demand are inextricably linked. Assuming we have a good credit policy, that is a rate cut or a CRR cut, one should buy autos.

I am not so sure about Tata Motors after the rather disappointing Jaguar numbers we got last night. But, Mahindra & Mahindra surely could be a pretty safe pick. For auto, we have to see what the pick up in the festival season is like because all the producers are expecting a lot from this season and the season has just started from today.

There could be a demand pick up. On the whole, as part of building up a long-term portfolio, Mahindra could be bought. For Tata Motors, there is no reason to sell it, but fresh addition is not good. I would still hold the view though that if you want to play a rate cut or a rate sensitive the financials are the safest.

Q: How would you approach the entire cement space now, the run has been quite strong in this sector, we have seen good results in the last quarter as well. This quarter what are you expecting from the big ones?

A: The cement results will be pretty good. They are in a very sweet spot now because the demand situation continues to be robust and all of them have added a lot of capacity. They are getting the benefits of volume at the right time. Cement has been a clear outperformer among commodities by a long yard in the last 12 months.

One may be inclined to sell them off and do some bargain hunting in some other commodities but, I would still say the winning run in cement is not yet over and if you wanted to be a bit adventurous or bet in midcaps, stocks like Heidelberg Cement, India Cement is seeing a fresh life in the last few days and could be excellent buys because they have got fairly good capacity, good managements and they have strong pricing power.

These are good midcaps for the risk taking guys, otherwise there is always the Ultratech cements of the world.

Q6: Any thoughts on exactly how you would approach the high-beta space, say something like a real estate HDIL or maybe GVK Power and Infra, all of these infra stocks?

A: I don't just say high-beta and start buying the space or selling the space. We have to go a bit more into the detail. For me, the infra pack is still a no. I stopped investing in India's infrastructure companies, the GVK Powers, the GMR Infras of the world about 2 years ago and I am not going to start right now because they have problems of order book, they have problems of implementation, they have problem of high debt, they have problem of liquidity and so forth.

Real estate is different because in real estate one is seeing a pick up in demand. Probably in Mumbai there is a sluggishness because that market had gone up a lot, but in the southern markets and even in the northern markets there is a genuine pick up in demand and in absorption ratios and willy-nilly banks are bending over backwards to lend to real estate in the affordable space.

As a space I am quite positive about real estate and going in it is a matter of detail, it is better you go for stocks, but have a clear roadmap in terms of earnings which are relatively low-debt. If one were to play the high-beta, the best bet would be real estate.

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