Midcaps to power markets in 2010: Prime Sec

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Q: Any thoughts on power as a space?

A: If there is one genuine bubble in the system, it is probably power. But there will come a time when these IPOs will get subscribed because these are good promoters coming out with IPOs. That is a good news. So, a number three or a number four promoter in a sense will not be able to raise money, but all the top guys have raised money. The market in its wisdom is saying I am getting an India exposure by coming into your company. But I think the returns over the next two-three years will wait for actual implementation to come through.

Q: You won't make too much money from here?

A: I don't think so.

Q: Any other area which seems like a bubble already?

A: I think some of the metal price movement to my mind is certainly like a bubble. They need to cool off. I think some of the public sector undertakings (PSUs) that have run ahead of divestment, people are going to lose money being in that space.

Q: Would you get out of the gold trade in 2010?

A: I think the gold trade has happened. I think it is a currency shift as most of these guys like Marc Faber and others say that the best currency they like is gold. It is viewed as a currency, it is a currency shift. I don't think there is significant gains to be had in weeks where it gets hammered at 12-15%. So, the bounce from USD 1,080 per ounce to USD 1,120-1,140 per ounce could happen. But apart from that, I don't see much play in that. I believe the gold play has moved to oil because that ties in with winter, ties in with economic recovery and ties in with a general scenario that the upside in the dollar maybe capped. But again you don't want oil shooting significantly above USD 83-85 per barrel levels.

Q: But looks like it may do USD 100 per barrel again in 2010?

A: It could because what is happening is markets have become thinner and with the consolidation of players internationally , there are fewer players. I don't want to say manipulating markets, but playing big in markets internationally. The international commodity trade is also dominated by a few players as we have read enough emails to substantiate. I believe that there are a fewer players now but they moved from gold to oil. I see that clearly evidenced by the way this will happen. So, oil could do USD 100-110 per barrel.

But among all commodities this is one that is not replenishable. To that extent, the base becomes higher on oil and therefore the offshore business and pipes business. So, something like a Jindal Saw is something which is where we think is a serious multibagger in the making even though it has moved up 50% from the recent lows and probably tripled in the year. Why? Because principal amount of the market cap is accounted by the investments it has. Now it is a different matter that they may not sell or they may sell one day - I don't know - maybe 4% of Jindal Steel & Power is worth Rs 3,500-4,000 crore. But I think the important thing is that they are getting into new business like water management and to green energy etc which could make waves in the next few quarters. So, Jindal Saw is a stock that you would well watch out.

Q: What is the one central risk to your hypothesis for 2010 that we have a new high?

A: I think the central risk is that if there is a dramatic recovery in the US prompting significant tightening of money because this easy money is moving into these markets. Let us not forget that Brazil has just hit a new lifetime high, so either markets will follow maybe with a lag and Brazil has been held by the fact that the currency has been in their favour. The foreigners have done well to invest in the Brazil area.

I think the central risk is that there is a dramatic tightening in the US interest rates. Two, I do not believe and I didn't believe even when it happened on the same day itself that Dubai etc is much more than a blip. If anything, it will probably make people look more and more towards countries like India where I think the size of the market - the stability etc - will be something that people can look at. My own feeling is that even in comparison with the BRIC countries. I think India is looking significantly better than it has ever looked before.