May 17, 2013, 08.32 PM | Source: CNBC-TV18
Investors must focus on mid cap companies now as market is likely to consolidate after a huge rally and large caps may not offer similar gains as earlier, says PN Vijay.
PN Vijay (more)
Portfolio Manager, askpnvijay.com | Capital Expertise: Equity - Fundamental ,IPO
“Now it may be better to start rotating the money and I can already see some smart money getting into so far neglected sectors because that is what always happens in the market,” Vijay said.
Sounding bullish about pharmaceutical counter Lupin , Vijay said that the company was no longer a mid cap but had come in the league of large caps or blue chip companies due to is robust performance.
“We use to talk about Cipla, Ranbaxy and Dr Reddy in one breath and then Lupin in the others but now Lupin is such a consistent performer quarter after quarter it is become a blue chip,” Vijay said.
Commenting on the S&P’s reiteration of negative outlook on Indian economy Vijay said that if government is able to pass on the key bills like insurance and pension, companies and implements Goods and Services Tax then it may enthuse rating agencies like S&P and Moody’s to upgrade India’s rating.
Below is the verbatim transcript of the Vijay’s interview
Q: What are you recommending in terms of a strategy for the markets now, would it be more of a stock specific call and what sort of levels would you be targeting on the Nifty now?
A: Stocks specific should be the order of the day because we have seen certain sectors just run away in the last 15 days. The private sector banks for example are just taken off. Now it may be better to start rotating the money and I can already see some smart money getting into so far neglected sectors because that is what always happens in the market. When the market rallies very strongly after that there is a period when there is a consolidation of the broad index but there is a lot of activity among stocks. Now one can see the semblance of a rally continuing into midcaps. So it might make a lot of sense to move to other sectors and move little bit away from large caps to midcaps.
Q: What is your call on capital goods, it has been a stunning rally that we have seen in last hour in all the capital goods stocks, it was led by ABB but now even Bharat Heavy Electricals (BHEL), some of the other stocks they are rallying big time. They haven't participated at all in this rally. What is the call from here given the fact that interest rates are going to ease further?
A: It is amazing what has happened to capital goods. If one didn’t see it one won't believe it. Capital goods have been the dogs of the whole market in the last two years, even worse than real estate and suddenly we have got buying led by the multinationals on perception that, there could be a total delisting in big multinational companies. These companies have a tendency to delist globally and India is one of the few markets where they have got quoted subsidiaries. Buying in that kind of stocks makes sense. But the kind of buying we are seeing in stocks like Voltas , BGR Energy or BHEL defies description. I don't think there is that much of fundamental news to derive capital goods. After all interest rates have been clearly going down but not to the extent that one can just go gung ho about it. Probably another 25 bps in June or so. Apart from that is it just not interest loan that derives capital goods. There has to be a lot of other factors like infrastructure, government approvals and so many complicated things. So unless there is a general recovery in the GDP and the economy, this type of move in capital goods is unwarranted and I would advise extreme caution on most of the capital good stocks unless they are very news driven like some of the multinational stocks.
A: These stocks have been favourite for a long time. I would only to a limited extent find the reentry into the Nifty as a reason, to some extent, yes. But IndusInd if one sees for example, it is following similar lines as Yes Bank for example, or more or less in line with Axis Bank So, it is part of the huge rally in private sector banks.
Lupin has become a blue chip. It is no longer a midcap pharma that we use to talk about two-three years ago. Remember, we use to talk about Cipla, Ranbaxy and Dr Reddy in one breath and then Lupin in the others, but now Lupin is such a consistent performer quarter after quarter that it has become a blue chip. Here again there are fundamentals that are driving the stock very important fundamentals which I don’t want to go in to right now. I think both these are not related to market internals but general rally which we are seeing in the sector and the fact that they are both very good stocks anyway.
Q: Any view on S&P saying that the rating in intact and outlooks remain negative?
A: It is more of a question; I guess no news is good news because nobody was expecting an upgrade given the situation on the current account deficit that we have been saying. There was always that lurking fear that S&P may take a view that India hasn’t done enough for a fiscal correction so this in a way would imply that S&P after the last recession has not felt it necessary to view India in a slightly worst light. The Indian story is very mix now. Our efforts to cut down fiscal deficit have been commendable. The marking to market of diesel and cooking gas prices was a very tough political decision the government went through. We saw the positive impact in a fiscal deficit the revised number for 12-13 and also in the budget of 13-14. S&P would have admired that. S&P would have been extremely worried about the current account deficit which we didn’t think was such a big issue but all this humongous gold import has put that in a bigger picture. S&P had no reason to improve our rating. Surely whatever Chidambaram and others may hope for but at least market players are relieved that there is no downgrade because a sudden S&P downgrade would has really scooped this liquidity driven market
Q: What sort of reform agenda would S&P and the other investors like to see from the Indian stable or from the government stable because we have done quite a bit on the diesel front etc but what more would be a key development or a key reform which would be important for us?
A: I think two things would be extremely helpful. On the legislation front, if we can get more action on the insurance bill, pension bill and Companies Act and make very strong moves towards GST that is all that is left in reforms in India if you ask me, rest of it we have completed structural reforms so this would enthuse S&P and Moody’s.
The second bet is on the ground. There has been so much of talk about in making the investment climate better but somehow the government has not been able to improve the investment activity. The investment activity still remains at a very-very low percentage of gross domestic product (GDP) and for that the government has to show action on the ground by quicker implementation of power projects, mining projects, infrastructure projects, port projects, the freight corridor etc. That is again an intention and the government must have the guts to do it. On the legislative level about four of them GST and insurance bill being the most important and on the ground making things act lot faster in the infrastructure sector.
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