Portfolio manager, PN Vijay of askpnvijay.com is bullish on Tata Motors and says investors should consider the stock from a long-term perspective. According to him, Tata Motors's JLR business is showing commendable growth in China and other markets.
Vijay is also betting big on Sun TV and feels that the channel's business model is "terrific".
"It has spread its fangs all over the place. Infact, it continues to be the dominant entertainment channel by any count in the four South Indian states which account for about 40 percent of India's television viewing," adds Vijay in an interview to CNBC-TV18.
Below is the edited transcript of Vijay's interview to CNBC-TV18.
Q: The past days have been exceptionally weak for the broader market. What would you do with something like a Tata Motors which has suddenly come down to Rs 270? Would you buy it or wait out a bit?
A: The auto sector in general and Tata Motors surely would merit a buy at some stage. Its JLR business is showing commendable strength on growth in China and other markets. India is not doing too badly either. The domestic commercial vehicle industry has a very strong co-relation to IIP and a slightly less strong co-relation to GDP.
One works on the argument that the IIP is probably troughing out from January-February onwards to a decent figure working towards five percent by the end of calendar year. The benefits of that should flow very systematically into demand for commercial vehicles. So, in the long-term, I am quite bullish about Tata Motors.
What we are also seeing is lot of short selling by speculators in the market in the last few days driven by very fortunate event related news for them. So, we need to see whether we would be catching a falling knife. I would probably give it a day. Normally, I see Indian market change direction on Fridays. So, probably if one gets a change of direction, somewhat late in the trade, one can pick up Tata Motors for investment purposes.
Q: There is an offer for sale (OFS) as well that comes through for Steel Authority of India (SAIL). How do you think one should approach that and what kind of reception do you think it will get?
A: I think I will pass it. I wouldn’t be surprised if it gets a rather tepid reception. The reason is, the price is not attractive to entice people. Secondly, there is a big question mark about the speed with which the steel demand will recover, because the steel industry is very complicated. It has got imports coming in; it depends on Chinese demand, exports and so on. Steel is a ferrous metal. It is not yet on a buy list even for bargain hunters. So, I think the institutions will probably take the same view. It might be stuffed with some other government institution more for fixing the fiscal deficit before March 31 but I don’t think investor interest would be there.
Q: The other stock that you track which has fallen quite a bit for whatever reason, maybe the politics of it with DMK is Sun TV. It is suddenly down 15 percent in a few sessions. Is it an opportunity or do you think this hangover will peg it back even more?
A: Sun TV is definitely an opportunity. I think the business model is terrific in Sun TV. It has spread its fangs all over the place. Infact, it continues to be the dominant entertainment channel by any count in the four South Indian states which account for about 40 percent of India's television viewing.
The North Indian channels find it very difficult to break the language barrier and enter there. So, it gives it a very strong monopolistic market share. Apart from that, its DTH business is gathering momentum. It did have a blip of the local state government in Tamil Nadu trying to nationalise it, but that didn’t go very far.
So, the business model is exceptionally strong for Sun TV. I believe that the politics is wearing it down but I think the family is sort of starting to distance itself from the politics. That’s the sense I am getting from Tamil Nadu. SpiceJet does not fall that much. It is as much a Maran company. In two years from now, I can imagine the Maran family to be totally out of politics. So I think these types of crashes could be used to build into a potential blue chips like Sun TV.
Q: The biggest losers will probably be some of the gold loan finance companies - Manappuram for sure, Muthoot to a lesser extent. How would you approach some of these stocks and what did you make of the concerns that arose this week?
A: From the last two years I have been recommending to avoid these companies. These companies having no background in finance, who are not known in the country for their financial acumen were playing on gold. As the global economy recovers, gold loses its safe haven status. It doesn’t need a great expert to say that the government was very worried about the flooding of gold imports with the current account deficit (CAD) being in excess of four percent of gross domestic product (GDP). It had to come. It was a matter of time. When government gets tough, it is just not the government that gets tough. The RBI gets tough, the direct enforcement gets tough, everybody gets tough. So, I think it is just bad news for all these gold related companies including Mannapuram.
Q: Do you think the politics will keep some kind of edge to the market over the next few sessions or has the market sort of priced it in and that will not be a big trigger on the downside?
A: The polemics of the DMK issue is definitely keeping the market on the edge for last few days. Nobody is talking about government falling. There is not even a talk of no confidence motion because you have to look at it from each party’s point of view. Would they want to really have a general election with Narendra Modi making such big inroads immediately before they consolidated their own vote banks? So, except Mamata Banerjee and probably Mulayam Singh Yadav, there is nobody in this country who really wants an election. So, that means they don’t want this government to fall because a new government for such a short period is very unlikely as per Indian law. That means that the government will continue.
The second point is whether it will be a lame duck and whether it will take decisions? There is a perceptible and welcome change in the BJP from the winter session. BJP has decided to sort of cooperate. We saw that getting reflected in passing some economic legislation. The main opposition party in the UPA has established a communication link on that, which is why Parthasarathi Shome said goods and services tax (GST) is surely coming back this year. So, in the financial year 2013-14, one wouldn’t be surprised if we got some sort of an insurance law in place, some amendments to the pension act and GST, which will be a big thing for the market considering the Budget has freed up petrol product prices except kerosene. The market lacks some political sagacity to read Indian politics properly, probably because of its rather speculative nature in India. But, the politics of the day will not play spoil sport in any significant fashion in the next six months.
Q: What about micro finance name like SKS Microfinance? How would you approach the recent fall?
A: That’s another joker in the pack. I think micro finance is a great concept but the wrong people in this country have promoted it. Unfortunately, you need very deep pockets and you need sustaining power. I wish banks had promoted these. The Supreme Court decision is something good for them because a lot of competition was in Andhra Pradesh. These are not stocks for this type of environment at all. You will need a buoyant bull market with the Sensex somewhere 22,000 or so for you to get any great movement. Today we are playing risk. Micro finance companies are at the top of the risk pyramid.