Find out: Why Brics Sec is bullish on small cement cos

Excerpts from Bazaar on CNBC-TV18 Watch the full show » RELATED NEWS Banks, pharma, auto, FMCG rally to pause: Fortune Fin Expect USD 20-25 bn FII flow this year: Raamdeo Agrawal 10 cues you need to know before starting your trade Check out: Quantum AMC's top sector bets 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 Nifty BSE | NSE 30/05/12 Are Mutual Funds betting on Nifty?

Q: Let us talk about some of the sectors that have been moving then, for example, cement, is there a case to buy that?

A: Like I said, this is based on hope. The rumour is that we will see, as soon as the worst is over, an increase in prices of cement. If you look at the numbers, the only reason that can happen is because you will have a very strong level of cartelisation. If you go back into history, cartels have never sustained in a situation where there has been a surplus cement capacity. So, three years down the road with existing capacity will there be a demand overtaking supply? The answer is yes.

Are the frontline companies trading at such severe discounts to what they should be that should allow you to make serious money on it? The answer is categorically no. Can you find smaller cement companies, which are trading at reasonable valuations? Possibly. But usually they trade at deep discounts only because there is a good reason for them to do because finally in the commodity businesses, the only thing that will survive are the larger guys. So, if you want to say that the smaller guys can get picked up or bought out and they are trading cheap, yes, possibly there is a rationale for buying them. On the frontline companies, I think you are buying, but you are buying because you are a long-term investor with a five year view.

Q: You have been pretty bullish though on stories like the iron ore companies. In that light, what did you make of the Vedanta- Cairn deal with specific reference to Sesa Goa ?

A: We don't track that sector from the point of view of analysing it. When I was bullish on resources, I was basically saying that you are going to print so much that you have to find something which is not printable and usually iron ore is difficult to print. But that said, clearly Sesa Goa cannot grow too much because you are not going to allow them to go out and acquire mines or atleast the so called policies have not allowed them to do that, you put a ban on exports, therefore you cannot go out. So, there is a question of what you are going to do with the money.

Ideally, economic theory will have you that if you have extra money and you don't know what to do with it, return it to shareholders. But when you bring it down to the reality of the business, I have not yet seen any significant return of capital by any promoter in this country or for that matter in most of the countries elsewhere. So, you would have to make some optical economic asset allocation decisions and I think Cairn Energy's purchase is one such.

Q: There has not been any great retail euphoria like we saw at the end of 2007. In that sense, are the two pictures dissimilar or do you think a valuation bubble might be a bubble nevertheless and it does not require retail participation before it tops out?

A: I think retail participation may start to pick up now. But you are absolutely right, the big difference this time is that there is no great euphoria and in the retail market most people have sat out through this rally and I have not made any money. The risk, therefore, is that if the market were to sustain or perhaps move up a bit from here, you would have them coming in because finally there has to be capitulation of people saying there is no other option to make money and therefore let me go back and buy some stocks because they don't fall. That is perhaps one of the key reasons why even if there is a fall, it may not be a very dramatic one, atleast nowhere close to the kind that we had witnessed in 2008.

But that said, I think just timewise a bit of a correction is due. But I don't know whether that will be anything meaningful because there are people waiting to find a reason to invest and you would find the money coming back in.