Retail is a long-term play: Jayprakash Sinha

Excerpts from CNBC-TV18's exclusive interview with Jayprakash Sinha:

Q: What have you made of it, 11,000 has been conquered and we seem to be holding steady on good liquidity as well?

A: What we are seeing is definitely very good liquidity. In fact, two days back the overall cash market transaction volume was more than Rs 15,000 crore. What we have observed since March 1 is that the FII is putting almost USD 1.1 billion. Even mutual funds in last few days have started buying.

Too much of liquidity is there; and it is still coming in. We have not seen any signs of it slowing down. The fund managers, FIIs are still looking to infuse a lot of capital. Liquidity is in the driving seat.

On the other side, the prospects of the companies are also looking decent. If you look at the construction space, the order book size is pretty robust. The same is true of the engineering and capital good segment. FMCG is another sector, where the numbers that have come out for the month of February are extremely exciting. It is having a 10.6% growth.

Thus, on one hand liquidity is good and on the other hand companies are doing pretty well.

Q: Would you make separate call at this point in time on aluminium, copper and Steel?

A: Overall the entire metal space both ferrous and non-ferrous has done pretty well. Aluminium, zinc, and copper are still looking attractive compared to steel. The non-ferrous metals looks much better than the ferrous segment.

Q: What are you recommending to your clients now and what do you still like on a valuation basis?

A: The growth numbers are good. So far we were seeing the growth mostly from the urban centres, but now we are seeing growth even from the rural centres. The rural centres are contributing to this kind of growth numbers.

Purely on valuations, we feel that Hindustan Lever is overstretched at this point of time. We are recommending our investors to switch from HLL to ITC. There are another good companies like Marico, Goodlass Nerolac at which one should look.

Q: Is there anything that you like in the entire pharmaceuticals pack?

A: The pharmaceuticals company has started picking up once again. Be it Dr Reddy’s or Cipla or Ranbaxy Laboratories or anyone, most of these companies are focusing the growth prospect in some of the regulated as well as unregulated markets.

Incremental growth in FY06 and even in FY07 is likely to be much better. In some cases, it should be as high as 50% or so. Clearly, the pharmaceuticals sector after being beaten down for quite some time is now looking good.

Ranbaxy is consolidating its position in Romanian market. Likewise, we have seen some other companies getting into other markets. They are trying to consolidate their position in regulated as well as unregulated market on the back of support from domestic operations. This strategy at this point of time augurs well for these companies.

Q: What is your call on technology at this juncture?

A: For sometime in the last one quarter, the technology hasn’t done well. But wherewithal shown by the large cap IT companies for larger deals is keeping us hopeful in terms of their earnings estimates. We are suggesting our investors to look for the companies like Infosys Technologies , Tata Consultancy Services and Satyam Computer , which are in the bigger league. The earning visibilities are very high in these cases.

Q: Is there anything that you like as a niche story in the midcap technology now?

A: Allsec technologies is a company, which is in the BPO operations. To some extent, Scandent Solutions also looks attractive. Large cap companies have delivered and are in a position to deliver much better results compared to their smaller peers.

Q:  How do you view the sugar story?

A: Even in those cases, where the price targets are achieved, we are not suggesting investors to book profits. We are seeing another big move from here on. The sugar prices are at a sixteen-year high. They are ruling the London exchange. Even after 18 million tonne of production this year, we are seeing demand supply crunch to continue. Agricultural minister has gone on saying that they are comfortable with Rs 27-28. But at Rs 18.50-19 we are seeing some amount of pricing power coming back to these millers, once the crushing season gets over.

Q: Would you enter the retail sector at the current levels at all?

A: The entire retail space has had a good run up. If one is taking a one to three year perspective, this space is one of the sectors, which will give you supernormal returns. They are located at the upcoming centres. They have already captured locations, which has developed well. Location matters a lot in retail.

The total market size of organized retail in India compared to Walmart is nothing. So sooner or later when this sector opens, it will be mind-blowing size. That is why we are saying that this sector augurs well for long-term investors.

Q: How do you view HLL and ITC?

A: It would be unfair to say that visibility in Hindustan Lever is less; and in ITC  it is more. But, yes the ITC’s non-tobacco businesses are definitely growing at a faster pace because of the lower base.

They have also got a leg up from the Budget, where paper excise duty has been reduced from 16 to 12%. A lot of impetus has been given to food processing. That goes pretty well with ITC, where the visibility is even higher. That is one side of the story. There is no reduction as far as the visibility of Hindustan lever is concerned.

Q: Any disclosures you would like to make?

A: No. I think, I did not discuss about HDFC, where I have some holdings. Other than that personally I don’t hold any other stock.