SENSEX NIFTY
Jun 30, 2014, 10.55 AM IST | Source: CNBC-TV18

Expect good mkt sessions until Budget; long DLF: PN Vijay

Despite the Indian market seeing a 1.5 percent cut in both Sensex and Nifty yesterday, portfolio manager, PN Vijay is bullish on the market performance in the days before the Finance Minister, P Chidambaram announces the Union Budget 2013.

Despite the Indian market seeing a 1.5 percent cut in both Sensex and Nifty yesterday, PN Vijay, portfolio manager of askpnvijay.com is bullish on the market's performance in the days before the Finance Minister, P Chidambaram announces the Union Budget 2013. The Sensex ended at 19325, down 317 points and the Nifty at 5852, down 90 points yesterday. 

Vijay believes it is possible that the Budget may be aimed at improving investor and business sentiment. "Investor sentiment is easily revived by some direct tax sops and being the pre-election Budget, I guess it is very likely that we see some significant tax sops for individuals and for the industry. One needs to make some tweaking here and there. So, on the whole, there is a certain amount of optimism that the Budget will be quite positive," he adds.

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The optimism, according to Vijay, could be factored in even before the Budget and most likely in the next three or four trading days.

Vijay recommends investors to buy Delhi Land & Finance ( DLF ) from a long term perspective. He sees DLF as a safe bet due to its size, aggressive debt reduction plans and better quality of governance.

Below is the edited transcript of Vijay's interview to CNBC-TV18.

Q: What have you made of this very tentative approach to the Budget this time around because of global cues? Do you expect a big pickup post Budget?

A: We might have a pickup even pre-Budget. We were hit hard by the base book that remained the scarlet book even though the document itself was extremely positive. There were two or three statements suggesting some of the member may want a possible downsizing and a gradual removal of the QE3 in anticipation of inflation. There is too much liquidity in the US system, so that is the cat amongst the pigeons and even though foreign institutional investor (FII) selling has not been very significant in India, it was enough for traders to beat down stocks. So, that is what is really happening in the last three days, though the previous month has not been great.

People are coming to terms with low growth and a possibility of the low growth continuing for sometime, so the macro scenario has not been too conducive. So, it is possible that the Budget maybe aimed at improving investor and business sentiment. In many ways, the government can do it. Investor sentiment is easily revived by some direct tax sops and being the pre-election Budget, I guess it is very likely that we see some significant tax sops for individuals and for the industry. One needs to make some tweaking here and there. So, on the whole, there is a certain amount of optimism that the Budget will be quite positive and the fact that the government was brave enough to withdraw the last tranche of its borrowing shows that 5.3 percent fiscal deficit is not a great concern for them. So, I am not seriously concerned about the situation till the Budget. As the afternoon goes in, the sentiment will start slightly changing and we may have a good pre-Budget trading for three or four days.

Q: The banks were hit quite hard yesterday. Do you think there will be anything for them specifically in the Budget? Can they maintain their leadership position?

A: There is nothing to link the banks with QE3 (quantitative easing). Indian banks are very domestic. What can the Budget do to the banks, even if the Finance Minister wanted to do anything? Administration or supervision of banks is very much in the domain of the Reserve Bank of India (RBI).

If the RBI changes the NPA recognition norms, it could change the capital adequacy norms but then that is again basal territory. So, there is nothing the government can do for banks. Banks now have become such a big portion of the trader in terms of price positioning. There are the over priced but good private banks, the under priced but worrisome public sector banks. There is a lot meat out there so I am not surprised that people are having a nice time with the banks.

However, I don’t see the banks being affected either way through the Budget except that for many years we had tax on bank interest that was substantially tax free. Then Chidambaram, in the later part of the last century, brutally cut that off and now interest from bank deposits is just like any other interest. So, there could be a feeling that in order to revive bank growth, he might increase the tax exemption on bank deposits. For example, if it is just Rs 10,000 now, he may increase it to Rs 1 lakh or Rs 2 lakh. So, that is the only thing I can think of where the banks would be direct beneficiaries of the Budget.

Q: The standard performance for this week is Delhi Land & Finance (DLF). How would you approach that stock now?

A: DLF appears to be the safest among the real estate plays and there is no doubt that some portion of your equity investment should be risk related. Whether you want to be in a bank or a real estate stock is a matter of your risk appetite.

If things are happening in the debt reduction side and there is fair amount of pickup on the ground in real estate, especially in the residential space across markets, the pricing is still soft but occupancy levels are improving. So, in a rather macro scenario, I would say DLF is a fairly good bet if one had to take a 12-15 month time span. It should outperform the Nifty. The real estate sector this time is responding rather slowly to rate cycle change and that is because the banks have been reluctant to cut rates. Also, the vacancy and the occupation rates are still going against the producers. However, that can change fast. So, among all the real estate players, because of its size and because of its aggressive debt reduction plans and probably better quality of governance, one could get DLF as a relative safer pick in the sector.

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