Brics Securities prefers Jagran Prakashan to DB Corp

Excerpts from Bazaar on CNBC-TV18 Watch the full show » RELATED NEWS See fair value of DB Corp at Rs 234/sh: Angel Broking DB Corp lists at Rs 254/share on NSE See DB Corp fair value at Rs 240-245/sh: Udayan Mukherjee

Q: How would you approach these metal stocks? Would you take profits here or do you think momentum can still surprise on the way up?

A: It is a pure commodity; I have no view on it. The logic currently in the market is that if raw material prices are going up consequently end user prices have to go up as well. The fact of the matter is that near-term at least the demand seems to be reasonably robust within India. But given the kind of capacities that exist, you are looking at China to dictate where the prices will be especially in the case of steel. News reports are that they have cutback steel production quite dramatically in an effort to keep prices up. If that is true and they continue to do that then obviously there is some more headroom.

On the other hand if they decide that there is enough demand now and let that release some of the capacities, you will probably find that the prices are unable to move up from here further. So to the extent, people today are willing to price anything on a near-term earnings basis as if it is going to sustain for the long-term, I would imagine that steel prices especially in stocks are doing reasonably okay.

Q: Is the worst over for telecom?

A: It depends on what you define as the worst. None of them have gone into the red yet because of the new pricing policies. We still are expecting to see a fairly large volume of bidding in terms of the 3G licenses whenever they were to come. We cannot yet figure out how the 3G licenses monetize other than to sell 2G services.

So if you are saying that will they make lot of money from hereon? Probably not. Have the prices corrected or not? In the context of market they have been gross underperformers. Therefore, on a rotational basis, it could be a sector that some investors may want to look at, but I don't see any long-term change in earnings profiles just yet.

Q: The curious development though for the market these past couple of days is that there has been a lot of momentum on prices but not so much for volumes, how would you explain that?

A: I think you are looking at action outside the Nifty now because for the most part, the investors including institutional investors have begun to realize that the frontline companies are more or less pricing in most earning surprises to perfection and there is now hardly any scope in terms of a positive surprise from hereon. So if you have to look for alpha, you have to look outside the Nifty and that is where you are seeing the broader market doing quite well and continuing to do so in the current year. So long as money supply continues to be fairly easy and availability of money for risky assets continues to be available, you would have a situation where you would be looking for smaller and smaller companies with a higher growth potential as possible investment opportunities. Obviously that comes with lower volumes because you cannot have the same kind of volume in a company, which is a Rs 1,000 crore marketcap as opposed to something, which is Rs 25,000 or a Rs 100,000 crore marketcap. So the volumes would naturally shrink but the price movements would be rapid in those companies.

Q: Auto Expo is on now, how are you approaching this space after their outperformance? Do you think increased competition should make one cautious or they might continue to outperform through 2010?

A: I think the analyst community at least, including our analysts, is extremely bullish on the volume growth. This is despite the assumption that there will be some kind of excise rollback. The cut in excise will be rolled back to some extent in the current year's budget, given the robust demand situation as well as the fact that last year you can imagine that the last part of the growth, our estimate is close to 25-30% of incremental demand for at least the smaller cars and for two-wheelers especially, would have been fueled by the pay commission handouts. Both of them are negative for the current year, but the assumption that is being made is that with the revival in the economy, the urban demand will pick up quite significantly and at least replace if not add to the demand growth last year.

However, I think in terms of earnings clearly this would be probably the best quarter earnings we are likely to see a whopper of a quarter with several 100% increase in bottomline YoY because the corresponding quarter last year was quite bad. So near-term it looks like the best is kind of priced in. We have to assume some kind of earning surprise from hereon, which is somewhat difficult for it to outperform. So at best, I would imagine it is a kind of market performer if not slightly underperformer.