Good buying opportunities in Indian market: Veda Investment

Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See what other FIIs are saying about the markets See what other experts are saying about markets See what Udayan Mukherjee is saying about the markets Nifty BSE | NSE 01/06/12 Are Mutual Funds betting on Nifty? Other Stocks in this news Gitanjali Gems | ICICI Bank | HDFC Bank | Tata Motors | Reliance Industries |

Japanese stocks opened higher for the first time in two days, but investors remain cautious as another fire broke out at the number four reactor of the Fukushima plant. Rest of Asia too trades firm despite negative Wall Street cues.

Speaking to CNBC-TV18, Vikas Pershad of Veda Investments said it would be too early to start buying in Japan. "One can be very selective but you just don't know what is going to happen in the near-term," he said.

However, he said, it is a good time to start buying in Indian markets. "Based fundamentals and on what we know today, we have probably seen the lows at around 5,200-5,250 or so," he said

Below is a verbatim transcript of the interview. Also watch the video.

Q: A lot has happened over the last week or so. How do you think investment calls are being taken around the region now?

A: For people who are investing in Japan, it might be little too soon to buy. One can be very selective but you just don't know what is going to happen in the near-term. For people investing in India, that is Indian investors, I think this noise or these dislocations that are occurring in the market, are good times to buy what one likes. It is a good buying opportunity. You will look back a few months from now and see that this was a good buying opportunity for many things.

It also puts things into perspective. Back in November-December, we were very worried about the scams and inflation and things like that but when you see what is happening in Japan then you realize what a true tragedy is.

Q: For the Nifty though, do you think 5,400 will manage to hold out as it has over the last one week or do you think we will go back and retest 5,200?

A: For the most part these round numbers don't hold much weight but in the short-term, yes, I do think that we have seen the lows for now in the Indian market. There has been so much noise. There is no shortage of reason to sell off in the market. What is happening in Europe, North Africa and now Japan, yet the Indian markets are down 1%, up a couple of percent, down another percent. So based fundamentals and on what we know today, we have probably seen the lows at around 5,200-5,250 or so. 

Q: What about the midcap universe or the broader market? That is not recovering or that is not showing as much resilience as the Nifty. Is it largely sentiment which is keeping those stocks under check?

A: It is not just the sentiment because of what going on globally. It is for real reasons. There is a time earlier this year, when you just didn't know which company would be hit by some news regarding promoter's holdings or a true reason to be sceptical of earnings or fundamentals. So it is not just the sentiment, but yes, I do agree with you that on a longer-term view many Indian midcaps look appealing.

The one thing I did want to say is that, quite often we get caught up in what XYZ stock will do over the next day or week or month. India is one of the few stories in the world where I can say with reasonable conviction that we are much closer to the beginning of the longer-term growth story and in a few years from now we will be better off than we are today.

So within that context, there are many things that you can buy like Jain Irrigation, UTV Software and Gitanjali Gems . Gitanjali Gems is multiple ways to win. I think the multiples are low. The fundamentals are improving especially here on the ground in the US and there are rumours, or there is news potential about PE groups being interested in certain parts of the business, which should drive the valuations higher. There are plenty of things to buy in the midcap space.

Q: A lot of the worries for people tracking or investing in India is sourced from are macro issues - inflation, growth rates etc. On that, how do you think sentiment stands because the last inflation number we got rattled people's nerves?

A: Yes, absolutely. They are still very concerned. Antique hosted a conference in New York last week for Indian and Pakistani companies and it was interesting that many of the investors were there out of interest. They eagerly met all the companies but if you asked them they said, "I am hesitant to invest in India right now and Pakistan the same because I don't know what going to happen tomorrow." So if they are going to invest in India, it is going to be in IT companies, which they have been following for a decade now since the dotcom boom in 1999-2000. It is going to be Reliance Industries and the two big banks: ICICI Bank and HDFC Bank along with Tata Motors perhaps.

There is a small universe of companies that are well-known and they know they won't come in tomorrow morning and have the stock prices go down by 30%. But I think that period has been priced in. When you have stocks go down by 30-50% in a short period of time, that is usually a panic selling or it's overdone. All that is priced in. So even if you look at something like IRB, there were questions about Mr Mhaiskar's holdings in some other companies, I think that was largely noise and the fundamentals are fine. But FIIs still are hesitant.

Q: How are you playing this, both in terms of sectors and stocks then?

A: I think you are seeing opportunities across the board. We always talk about the banks and the consumer companies. I have been visiting with some other companies lately, and I think if you look at the recent sell-off in companies like Gitanjali Gems, Jain Irrigation, UTV Software, even something like Den Networks where the chart looks horrendous but there is real business there and I think there is too much uncertainty around the government regulation. That's giving you a buying opportunity as well.

Q: If your view is though that we are somewhere close to the bottom, do you see significant upsides to the market in the near-term, just in the next few weeks and months?

A: I don't think so. As we have noticed the markets have been resilient despite all the things that are going on. There are reasons to sell off but we haven't really sold off that much after the initial sell off that we saw in December and January, this year. But as far as catalyst to the upside, I think the multiples are fair. They are neither cheap nor expensive. Earnings season how great could it possibly be; the budget has come. There are limited reasons to be buying on the upside for elections that are coming up in some states. We could well be in this range for a while, I don't expect a big jump from these levels anytime soon.

Q: Last few days we have seen positive flows from the global investors. You were talking about interacting with some of them. What is your sense? Has the mood on India changed a bit?

A: It is quite interesting. Up until maybe 10 days ago India was no longer the flavour of the month and funds were flowing outwards. If anybody was investing in India, it was in the stocks and sectors that they are very familiar with. A lot of people came into India in August and September of last year. The Indian markets had greatly outperformed developed markets last year in August and September. Lot of money flow came in - those same people have started coming out because they have seen the Western European markets improve a little bit. North America improves a little bit and up until a week ago, Japan started looking attractive in terms of valuations.

Then you had all the scams, fund flows going in the other direction. But in the near-term, you might actually see India be quite resilient as it has been or outperformed relatively to the upside because it is largely domestic story, it is not impacted by what is going on in Japan. It is not too impacted by what is going on in Europe aside from the risk appetite.

So in the short-term, we could see India outperform, which is why I am looking at India closely for the first time in a few weeks.

Q: Do you stand on this one, Reliance ?

A: Around Rs 950 or so, I didn't think that there is much reason to be in RIL. I think things have changed a little bit given what's happened in Japan. I wouldn't expect another 14% move over the next month or so. But if you look at it in more broad terms, my yardstick for investing is: I would like a return that is meaningfully above what passive capital gets you. So when banks in India give you interest rates of 7-9%, you should shoot for 15-16% in equity markets.

Now over next two-three years am I confident that RIL will return 15-16%? I think there is less that 50% chance that it does that, but I do think that there is significant optionality in the business, which is why I would be invested at these levels but I wouldn't get carried away, not have a very large position.

Q: You were speaking about commodities earlier in the show, what about softer commodities like sugar, which has corrected such a lot? How would you approach the liquid sugar stocks now?

A: We've been around this 30 cents level in sugar for a while. If I am reading the data correctly, the demand situation isn't as strong as investors perhaps were speculating when sugar got up to 33-34-35 cents. We have been in 28-32ish range for a while and there are uncertainties about supplies from Brazil. So I don't see a reason for a huge spike upwards in sugar.

In May of last year we were at 14-15-16 cents and we have now come about 80-85% up since that. I certainly don't see another 85% upward move in the next nine-ten months. 10-15% here and there perhaps but these commodities are so volatile and risky that you should be playing for 10% move anyway. There are better fundamental drivers for coco, coffee and for some of the other agricultural commodities, but not so much for sugar.