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Sep 08, 2012, 03.59 PM IST
As investors are nervous and trading on the edge, there are some experts who still feel that Indian market has steam left for a further rally. Anand Tandon of JRG Securities believes that the fear on the downside is ‘little exaggerated’.
Public sector bank which is trading at half book value is not something that is going to go under. While we could argue that the book value is being reflected correctly, my argument would be that if it is reflected correctly it is still trading at book value and as the numbers turn. Hopefully at some stage there will be some way of recovering some of these losses. This is because if you are for e.g. lending to power sector or any of those kind of things aside from things like Kingfisher which may vanish but if you are lending to power sector companies, the likelihood is that the NPA will come back.
You will have the cycle turning to your benefit as well as the asset getting recovered. So I think the potential loss from there is very low. Let me clarify that the way I look at the market is where is the chance of it falling the least and then the upside is something that you have to wait for a lot of people to figure out that what you got into was correct. I am not a momentum investor so many of my views would reflect that kind of approach.
Q: Between BHEL and Bharti both have been plagued by regulatory issues and where the potential earnings growth looks a little bleak at least at this point in time. Would you buy anything with either a 3-5 year time horizon?
A: BHEL is a pure play of the industry. So you have to try and time the cycle of the industry rather than anything to do with BHEL. I don’t think the management itself can do much.
Bharti, on the other hand, has an active management and therefore if you are looking at a situation where they could emerge from the woods even if the market remains somewhat subdued then I would place my bet on Bharti. But neither of those two stocks are necessarily looking to be in something which is very promising at this stage.
Q: You saw the earlier downturn from 1997 to 2003 whenever that was and at that time while we looked at FMCG valuations and called them crazy, they just got crazier the next year and even crazier the next year. So while everyone recognizes that valuations are high for several of the FMCG stocks currently, would you say that this trend could continue for another couple of years?
A: It is not likely in my view to continue for the next couple of years, I mean will they fall off. Unlikely, will they continue to stay perhaps at where they are but not grow if the market were to grow. I think that’s a much more likely scenario. My argument has been always that if work well in an inflationary scenario.
At some stage inflation has to follow-up. As the inflation comes off especially on the commodity side we will find that their ability to create any kind of pricing will come under some kind of stress. The other thing is that the valuation currently is lower than as you said in the past it was higher but that was because more of the fact that they were MNCs.
They apparently had a pedigree which was better than some of the Indian companies, at least that sheen has taken off now because MNCs can also back the small shareholder and to that extent. Therefore, I do not expect those kind of crazy valuations to come back again.
Q: If we do get some more quantitative easing or any sort of easing of monetary policy by the Fed come next week, what kind of upside do you expect to see in global commodities? In-turn do you think that there could be further potential in commodity stocks in our own markets as well?
A: I think the only area in commodity where you will now have a kind of bull market at least in my view is in the agriculture side. Gold is little more tricky because gold is more a bet on the fact that fiat currency will one day die. That’s a doomsday scenario. I do not know how to play it. So we leave that aside for the moment.
Other than insurance I do not think that gold is something that you can take a bet on. On the agri side you will continue to see inflationary impact, I think given the slowdown that one is witnessing in China and the fact that we now got a five year bull run where lot of capacity has come on stream. It is unlikely that we will see the same prices that you have seen a couple of years ago. Broadly the commodity cycle for the metals, not so bullish, agri is still there, gold depends on what view you take when the monetary collapse will happen if at all.
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