Deficit monsoon priced in by market: PN Vijay

“I think July priced in the monsoon because the market actually lost about a percent while global markets trended up very nicely. The only reason was that the monsoon was a concern, so this 20% deficit I think has been priced in,” he explained in an interview to CNBC-TV18.

Furthermore, he says the cropping situation in the country will not be very adversely impacted by the monsoon either because there is adequate stock. He points out that exports of rice and wheat are still allowed, so there is no worry on that front. “But vegetables and some other oil seeds and pulses keep spiking inflation and that’s a worry,” he added.

Below is an edited transcript of his interview with Udayan Mukherjee and Sonia Shenoy.

Q: What do you make of the monsoon news? We have confirmation from the IMD that we are looking at a drought-like situation. Do you think that’s been priced in by the market or is it likely to be a headwind?

A: I think July priced in the monsoon because the market actually lost about a percent while global markets trended up very nicely. The only reason was that the monsoon was a concern, so this 20% deficit I think has been priced in. Also, any deficit after August 15th has no economic significance because what happens is that the sowing stops by that time, even the late sowing. So one needs to look at it and say, okay let’s move on.

Fortunately, the storing capacity of wheat and rice is very high. Exports have not been banned, infact they have risen, which means that there is no pressure from them. But vegetables and some other oil seeds and pulses keep spiking inflation and that’s a worry. But I think the monsoon has been priced in at this level at the stock market.

Q: Of the two stocks which responded well to results yesterday, Voltas and Cummins , which one would you plum for now?

A: I don’t know if Voltas is sustainable, and there are many questions about that, but Cummins has got a very good model. They have been delivering and I think the robust performance got reflected in the share prices. Also, they are not working in such a competitive environment as Voltas. So between the two I would go for Cummins.

Q: What are you doing with technology right now? Many of these midcap stocks have done so much better than their large cap peers. Does it makes sense to churn one’s technology portfolio around?

A: I see that some of the midcap IT stocks have surprised us positively on the upside. One was expecting more pricing pressure on them. But we are still sticking to HCL Tech as our prime pick, and incidentally that’s also done very well in the last quarter. We went out of Infosys sometime ago before the results because there were corporate governance issues that were going on there we didn’t like too much. The sector itself is having a lot of headwinds in terms of US growth and further capital expenditure by companies, pricing etc.

I don’t see the rupee depreciating beyond this level, given that the trade deficit is coming down quite sharply. So given that scenario, we are still sticking only to the majors and among the majors we have been holding HCL Tech profitably for a long time and to some extent Tata Consultancy Services .

Q: How would you approach something like JP Associates post its numbers? 

A: I have been very negative on JP Associates for the last three year given their high level of debt. But I am getting a bit more neutral for two reasons. One is that we are getting a date on the opening of the Yamuna Expressway on August 9, and that’s going to unleash a lot of cash flow for.

Also, the fact that they are seriously trying to sell some of their cement assets may bring down the debt and make the core business more profitable. My own sense is that I would not buy JP Associates, but if I am holding it, I will hold on some more time to see the impact of these two positive triggers.