Portfolio Manager PN Vijay finds the markets fairly valued. He advises caution and says there is not much value investing remaining.

Going forward, he feels liquidity and policy will be key factors that would drive markets.

Below is a verbatim transcript:
Q: How are you feeling about the market? Do you think it will be a good home run to the end of the year or are you a bit confused?

A: A bit o both. It’s more likely to be home run after all the positive things one is hearing around Delhi, very positive statements coming out from the government about reforms and government spokesman saying that this is the best time they have had for a long time to push through some structural reforms. We saw one of those in the public sector undertaking (PSU) disinvestment of all profit making companies and that’s triggered a run on PSU stocks and globally Dow managed to sort of keep its nose above 10,000 inspite of a terrible employment figure there and the dollar generally weakening has also helped, so there is a good bull argument for the market to go higher levels.

But one should caution, the market is at fair value, there is not that much of value investing in this market if you look at it. So it has to be liquidity and policy that has to take this market up from these levels.

Q: Do you think the market has stabilised, though somewhat, after last week’s volatility?

A: I don’t think the word stability can be used so early after the virulent volatility we saw last week. Apart from the intraday volatility we had, day-after-day, it was almost like one-day cricket match. But the volatility won’t be at this level because one is seeing some sort of secular trend globally and currency markets are also stabilising after the Fed’s meet is out. So all these lack of insubstantial moves in the economy would lead to stability. Though there are different pools in the market now. There are people who are convinced that the bull market run is of course for a while and there are people who are equally convinced that they are buying into a new big bull market. So this fight would go on in the market. There will be volatility but I don’t think we will have the volatility we had last two weeks.   

Q: If you are saying that the market is trading at a fair value what kind of churn are you doing with your portfolio. Which sides of your portfolio are you trimming now and which ones are you adding to?

A: We are trimming off banks because it’s getting a bit cloudy there. Every good piece of information is being balanced by a bad piece and the Reserve Bank of India is definitely tightening on liquidity and credit norms. So the banks, which were giving us superior gains, we are trimming it down and we have been significantly increasing our weightage in IT because both midcap and largecap is coming back to its own and selectively increasing our exposure into contracting and construction because what happened in my view is that we had the big general election and so there is an absolute stoppage of all new infrastructure orders and now the flow is in full swing, so these people will get better order visibility.

One thing we are following is urban investment because the last two years or Dr. Manmohan Singh’s government, there has been a remarkable shift into urban infrastructure development as compared to rural infrastructure development. On your channel you were talking about Ashok Leyland, which is a great beneficiary of urban transportation programme. So I think in the next five years anybody who is in someway connected with urban infrastructure investment would be worth looking at.  

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