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Mkt scenario not to improve for 6 months: PN Vijay

Published on Mon, Nov 17, 2008 at 09:30 | Source : CNBC-TV18

Updated at Mon, Nov 17, 2008 at 21:02

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PN Vijay, Portfolio Manager, said it was very difficult to decide how the markets would pan out by the end of December. He expects to see some improvement in the market scenario only in six months time, considering, the fall the market saw during October and the water-shed situation we are in right now.

Here is a verbatim transcript of the exclusive interview with PN Vijay on CNBC-TV18. Also watch the accompanying video.

Q: What is your sense of the market going into the year-end now?

A: It is a tough call. We are looking at probably a watershed type of situation. On one side, we have had a bad 2008, the fundamentals just cracked - first the oil prices, then the whole credit crunch and now this fear of a global recession.

Clearly the Governments are fighting with their backs to the wall; they have pumped in several trillion dollars to set right the credit system and to stimulate demand. They had a weekend in Washington where they have come with more emphasis on fiscal stimulus.

Only thing one can say is that six months from now, things should be a lot better than what they are now. By December 31, it is a difficult call to make.

Q: Even if we manage to close up this year without getting to the October lows, how concerned or worried are you about what happens come elections for our market?

A: Not much, because now the election scenario in India is fortunately emerging clearly. Alliances are being formed on both sides and the best thing is the communists are getting marginalized. I did not see a single headline from a communist in last one month in newspaper, so that is great news for stock markets.

So we either have a Congress led combine or a BJP (Bhartiya Janta Party) led combine, both are great for the market without communist. Of course there will be three months of hiatus, because of all these headlines, but I do not share the view that the elections are going to be any negative for the markets at all.

Q: There has been some monetary action in support of real estate, but is that a space you would want to get into now?

A: Not really. Among all the sectors, which had been hit hard by this - in India it is not recession, it is called a downturn in the Indian economy - real estate has been hit hardest. Mainly as it is interest sensitive sector, but apart from that a lot of these top companies are facing a severe cash crunch.

In the good old bull times they have invested so heavily into land banks and to convert these land banks into cash, it is going to take them a long time. So why should investors spend so much time in agony along with the owners.

Thus it is good for the real estate, but not immediately any great change in the sector.

Q: What did you make of that deal on TTML (Tata Tele Maharashtra Ltd)? Since you track telecom, would you want to switch out using this opportunity or do you think things might change for that company, it is a stock which interests you?

A: Telecom is becoming a fairly mature market in India quite quickly, loaoking at the struggle that Reliance, a relatively late player, has been having in its ARPUs (Average Revenue Per User) etc. and Indian telecom rates are the lowest in the world. So I do not know whether TTML is going to make that big grade, which Bharti has done so easily. So I would use this opportunity to get out of TTML.

Q: What would you do with this whole private sector banking lot?

A: I can see that there is a whole lot of selling among the top private sector banks like Axis Bank and HDFC Bank, but they are all right. The only problems they had were high cost of deposits because unlike the PSU banks, they don't have that huge low deposit based on the agricultural sector. But given the sharp downturn in inflation and expected a correction downward in both deposit rates and interest rates in next three months and higher current and savings account (CASA) that these people Axis Bank and HDFC Bank are building up; this year should be good for them.

I don't see any Non-Performing Asset (NPA) issues in these two banks. We hear rumours, but I don't see the NPAs an issue in these two banks. So one would have to watch but it is not at all a good strategy to sell-off an Axis Bank or a HDFC Bank.

Q: Would you look at anything in the aviation space like Kingfisher where the promoter is talking about getting some strategic investors and some money in? Is there a contrarian trade there or you would stay away?

A: No, Kingfisher looks very interesting. SeeingVijay Mallya's loves being with foreigners, the whole group in the last 50-years was built through foreign joint ventures (JVs), so you can't get these shares cheaper. The group has resources, unlike Jet Airways, it's a large group with a strong cash flow companies in breweries and distilleries, so if they are holding on to prices even though the fuel prices have fallen about 48%. So at this level you could even take a contrarian pick and buy Kingfisher, you can't lose at such a low level.