2007 to be volatile, yet exciting: Prime Sec

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N Jayakumar of Prime Securities believes that no market participant wanted the party in the market to end on a sour note. On that front, he feels that December has been a satisfying consolidating month.

Jayakumar adds that 2007 could be a volatile, challenging yet exciting for the markets. According to him, the overall theme that prevails in the market is that the tide has gone up and has taken many boats up. Now, more than ever, is the need to invest in very specific themes. He feels that investment banking boutiques hold a lot of promise.

Excerpts from CNBC-TV18's exclusive interview of N Jayakumar:

Q1: How do you feel entering 2007, at these levels?

A: I guess at one level, thank God it is over, which is probably the underlying theme. It has been a fantastic year and nobody, including every market participant, wanted the party to end on any kind of sour note and to that extent, December has been a satisfying consolidating month. There have been parts which threatened to upset the apple-cart but on the whole, I am happy, it ended the way it has and look forward to 2007.

I would like to wish every one the very best for what promises to be a volatile, challenging, but exciting 2007.

Q2: What kind of themes would you pursue? What is the best way from your eyes to approach 2007 as a good investing year?

A: The overall theme is that the tide has gone up; it has taken many boats up and we believe that now, more than ever is the need to invest on very specific hypothesis, very specific themes. We have got three or four themes, which we really like; starting off closest to home, which is, financial services has been a broad theme that people have liked in recent times.

We believe that investment banking boutiques, which does not  necessarily mean financial services with retail presence, etc, but specifically investment banking boutiques. I must caution you to the extent that we ourselves are an investment banking boutique; we really believe that now our business has annuity built in, because as corporate India is becoming bigger within the smaller mid-cap space, which is an under catered to space, it will need a lot more attention. So financial services boutiques is one big area of opportunity for investors.

Second area of opportunity, which I think is going to be a mega one is, while people are focusing on CAS and DTH, we think IPTV (Internet Protocol Television) is going to be a very big theme going forward. We think IPTV will revolutionise the way people have been seeing television and what comes to homes. So that is the second big theme and here is where the MTNLs and the BSNLs, which have actually been threatened to be wiped out of the fixed line market in India may actually come back with the ADSL modems and the coaxial cable getting into homes and offering them IPTV content. For the first time, MTNL and BSNL are way off ahead of everybody else in IPTV and we think the providers of IPTV connectors will be really the big beneficiaries of investor interest going forward.

The third theme we like is specific retailing as opposed to general-purpose retailing. The third theme, which we think is a big one includes jewellery, food retailing and most importantly garment or branded apparel retailing.

The fourth theme is the manufacturing of alternative energy, whether it be wind or other forms of energy alternative. Alternative energy includes  geothermal energy, energy derived by conversion of waste - waste biomass into power, waste plastics into power. Many more alternative energy themes are coming up. So it is a very theme-specific year the way we look at 2007 going forward.

Q3: Do you find a lot of stock in these spaces that you spoke about - in the IPTV space, one can think of IOL Broadband, you can think of one or two alternative stocks, etc. But is there a large universe of stocks that one can pick from the themes that you mentioned?

A: I think that is really the challenge because themes that have been universal,have number of players who effectively end up eating each others margins, etc. So, from our perspective the discovered theme is not going to be the theme for 2007. In IPTV space, you mentioned a few names; the way we look at it is, there are few stocks there, which is why the space is exciting.

The first off the block will end up becoming multi-baggers. There could be potential conflicts to the extent for some of these names but it is clear whether the few names there, will make it a challenge to discover these themes, which are few in this unlisted space, and bring them to the public markets.

I think it is going to be a year of undiscovered jewel rather than the discovered momentum investing. To that extent, it is heartening to note that we are at a 14,000-Index; but it is also challenging, it is fearful and we need to watch this with trepidation. That people are basically nervous at these levels and you need to go back to niche-specific areas does not bother me as there are few names and in fact that to me is the biggest opportunity for all.

Q4: When you spoke about financial services, people would straightaway start looking at listed brokerages, some of the listed NBFC stocks and one or two banks, which have embedded investment-banking services. What is the best way to hunt some of these financial service boutiques that you are talking about?

A: I think we are restricting here to the listed space because the unlisted space will be soon consolidated. The listed space has few names; the importance of this is that while big bulge bracket-broking houses and investment-banking firms of the overseas markets have entered India, there are a host of middle-tier names that are waiting to enter via collaborations.

I think we have know what can happen through Geojit Financial, which has been a great performer and has moved up on the strength of multiple things like retail expansion, expansion via the Middle East, etc, but there are several names in the listed space, which I think offer great potential.

 In the past, their businesses were seen as one-off market-oriented businesses, which are now tending to take on a certain kind of annuity to it, a certain regularity to it and that to my mind is the opportunity in this space, because everywhere else in the world, the financial services boom follows the real estate one and in most markets this has happened and the day is not far before it could pretty much happen to the mid-tier broking houses and mid-tier investment houses in India as well.