Buy stocks in next 6 months: Surefin Invst

Excerpts from Midcap Radar on CNBC-TV18 Watch the full show » ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets PNB Gilts BSE | NSE 31/05/12 Are Mutual Funds betting on PNB Gilts?

Amitabh Singhi , MD, Surefin Investments said that uncertainty is bad for prices. He added that there might be temporary jitters.

 

According to him, the next couple of weeks might be a good time to buy stocks. 

 

Excerpts from CNBC-TV18' exclusive interview with Amitabh Singhi:

 

Q: How are you reading this entire unfolding of political events, just on the cusp of earnings two-days from now and a couple of very important Reserve Bank meetings in the latter half of the month?

 

A: We have had a long history of political uncertainty and compared to the 70's, it's a cakewalk for some of the companies. So, uncertainty is always bad for prices.  But if you ask me, if any of our operating businesses would change, I don't think it matters at all. Its kind of insulated to some extent.

 

Now you can argue that certain policy changes might affect certain industries; maybe retail. But we have seen the worst and there might be temporary jitters. But if you are looking to buy something, it might be great time in the next couple of months or six months, where you might get a couple of weeks where things just melt.

 

I don't think it has very serious implications for the business in the next three-five years. That is why I am a happy buyer waiting for bad things to happen like these temporary things.

 

I don't really see what can go wrong. What are the choices the parties have? We are probably going to end up with another coalition.

 

So, this is just the fact of life in India, that we live with. And the companies have lived with this for the last 25 years. They can live for the next 5-10 years as well. I don't see such a big deal here. 

 

Q: The markets have a tendency to react to political uncertainty by clawing back just a wee bit. How much of a fall do you expect, in the face of some political uncertainties, say no-party getting a majority. In the light of these, what kind of falls or lows do you see from here, 10-20%?    

 

A: Obviously, it is almost impossible to predict that number to a certainty. But what will happen is when something happens, typically everything falls. So, you could have smaller companies that are already cheap, that might fall further. Some of the companies that have lot of froth in them, might get completely massacred.

 

But what is critical is how things come back. If you see any of the sectors, that were really hot a year back, or let us say sugar, anything that is very expensive right now. Then you might have 40% depreciation on some prices. It might or might not fall suddenly; it might be a one-month gradual decline. And then they don't come back up.

 

So, the thing to look out for is how much do these things come back up and will totally get determined by what price you are paying them today and what the underlined business is.            

 

Q: Which sectors, do you think, will be waiting to be grabbed, when that possible fall comes?

 

A: We have been buying fertilizers for two years. It is something that is very cheap on cash flow and it has a stable business. There are local monopolies and it has a retail backbone play. Gas coming would really help them. And it is not a very hot sector.

 

So, those things become cheaper and it will be interesting. Sugar , as a contrarian, I am still not looking at it. But if things go 30-40% lower, you might find some interesting sectors there. 

 

Some non-banking financial companies , or NBFCs, are very cheap today. You are getting NBFCs, at half book value, and point six adjusted book value. Those start becoming very attractive.

 

Obviously, from a three-five year perspective, we do not know what will happen in six months or nine months or things like that. And then, of course, you can look at individual companies. Look at individual companies, it could be a really boring sector, but you could have a gem there, which gets hammered 25-30%.

 

A lot of value people will come in and start cherry picking from that market. But I cannot predict that will happen. I am just going to wait opportunistically, that if, because of some temporary uncertainty the price falls and my bet would be the value wouldn't fall, as much it becomes very good, we can get in there at that time. 

 

Q: Can you leave us with one stock idea?

 

A: We been holding this for a while and will probably it for a little bit longer. It's a company called PNB Gilts , its 70% owned by PNB and they are primary dealer in the debt market. The company's book value is approximately Rs 38-39 a share. It is today at a change at Rs 23-24 odd. What they are holding essentially, if you look out the operating business, is nothing but Triple-A bonds.

 

So, you are pretty much getting Triple-A bonds, at about 55-60% of their value. Plus, they have an operating business, which will definitely breakeven. But my tandem is of making Rs 20-30-40 crores a year, if the management doesn't do anything different.

 

Now, my bet is since this company went public in 2000, their share price hasn't moved at all. The small shareholders has not done much and PNB might merge it back. There was some rumours in the market, that they might do that.

 

But to leave this Rs 500-600 crore pool of capital untouched, would from a small shareholders point of view, there might be some pressure, and it would not be a very wise thing to do for PNB.

 

I think there might be an event, maybe two years later, where this Rs 24 might go to Rs 40. If they can do something in the management, get into debt merchant banking or some kind of intermediation business we might even see this go higher than that.

 

So, that is the case where there is a very good marginal safety and there isn't much risk.