Cautious on IT, bet on banks, autos: PN Vijay

The Nifty closed flat at 5,227. The Sensex too made no big moves shutting shop at 17,213.

In an interview to CNBC-TV18, Portfolio manager PN Vijay says, the market is getting cynical about reforms. "We need more structural reforms from the government, atleast some positive noises on GST and FDI. That will turn the tables because they are irreversible," he asserts.

According to him, one needs to go overweight on rate sensitives. "If you look at different rate sensitives, banks and auto are very sensitive to interest rates. If you want to play the softer rate regime scenario, it's much better to stick to banks and the automobiles," he adds.

However, he is cautious on IT. "Most of the Indian companies are US and BFSI focused. Both the US and banking financial sector insurance space in the US are facing some headwinds for growth," he elaborates.

Also read: Here's how analysts view Infosys, TCS Q1 results

Below is the edited transcript of PN Vijay's interview.

Q: What can come in from Delhi? How easy or difficult it would be this time to push that much awaited diesel price hike?

A: I think there are a lot of expectations that after the presidential elections we will get diesel price hike. This is not a difficult thing to do. I do not think there will be any great opposition, if the diesel prices were increased by Rs 1-2 and LPG by Rs 25-30. I think that is almost a done case.

The other point is that whether we will get more far reaching reforms in terms of FDI etc. As far as the adjustment of petroleum product prices are concerned, I am fairly sure that we will get it in the period after the elections, before the monsoon session.

Q: Where do you see Infosys stabilise at now? The pricing decline that Infosys has indicated could perhaps hit its peers in the next one-two quarters. That is what analysts fear. And that may increase the caution overall on the sector. Would you be cautious as well from here on the overall sector?

A: One is cautious on IT because most of the Indian companies are US and BFSI focused. Both the US and banking financial sector insurance space in the US are facing some headwinds for growth. So, growth is going to be very insipient in these companies with a possible exception of HCL Technologies and maybe one or two others, Mahindra Satyam etc. But generally the outlook is very cautious.

On Infosys, the market was very merciless. If we go by the Rs 166 earnings per share projection, which the management has given for the current year, Infosys is available for something around 14 or less price earnings multiplier. That is the cheapest, to my mind, we have seen Infosys in the last 15 years.

Even in the crash of 2008, I think it didn’t go to that level. So, for value investors, Infosys around Rs 2,200 would be a very good buy. They may be going for volume rather than the high margins, which they used to charge. Generally, the whole market seems a value pick market.

India is a perfect example of the macro economy inching up slowly and valuations being very attractive. So, Infosys is the typical case of a blue-chip, which has got beaten down. For people with over twelve-month timeframe, at Rs 2,200, it is a good buy.

Q: How the market is prepping itself for this event (diesel hike)? If this does come about, what kind of a reaction do you hope to see? Do you see us breakout of this range, will we hit 5,500-5,600 or is that still a tall ask moment?

A: This market has not discounted this fact. The market is getting cynical about reforms. So, if you get Rs 3 diesel hike, that will give a leg up because people will feel that 5.1% fiscal deficit is manageable. That will mean that bond yields will slowly start going towards 8%. That means in effect the cost of money in the economy is getting down substantially.

I do not think that alone is enough to take the market to 5,600. We need more things. We need more structural reforms from the government, atleast some positive noises on GST and FDI. That will turn the tables because they are irreversible. One is hoping that, apart from this diesel and LPG hike which will be positive for the market, we should get something more structural like FDI and commitment on GST going forward.