Sensex inching to 9000 level: PN Vijay

The banking sector had a bad time, though today there was some bottom fishing in banking. So three to four sectors that account for about 25-30% of the index, may drag it down in December. But on the whole, the situation seems to be quite cheerful.

Q: In the next three to four weeks, do you find the Sensex closer to 8000 levels or closer to the 9000 level?

A: I guess that I would be in a majority, if I say that it is closer to the 9000 level, because we have crossed the hump in November. We had a roaring rally and people were nervous on whether the rally was sustainable. In the last one week, there has not been any precipitous fall.

If the rollovers are any indication, then we are inching our way to the 9000 levels. Liquidity may drive a bit in December, if funds come in or some front running takes place by brokers, in anticipation of funds coming in January. That can take the market up.

Q: Is it going to take the midcap space along with it as well, because even though the frontliners have recovered, it has been very soft-to-flat scenario for the midcaps?

A: I have always been a great admirer of midcaps because that is where the interesting discoveries are and the re-ratings take place. But one is seeing a flight to quality among the investors recently. Even the HNIs, who used to be great hunters in the midcap space, are tending to buy Maruti or Bajaj Auto , rather than going one step down. It is an interesting fact that I am observing. So probably in the next two to three months, it could be the large caps who will lead the show.

Q: Another analyst said that the market may not go back to the point, where it came from. The pull back was indicative of the fact that market is going to stabilise above 8000 levels. Do you agree that a base formation could have happened at a higher level now?

A: I think so. I would be surprised if the markets go below 7500 levels, that we saw toward end of October. Traditionally, December-January have been good in terms of fund flows. I can see the Manmohan Singh Government trying to build some sort of momentum on the economic reforms, given the beating they have received on the political front. I can sense some announcements coming in, in December, as the winter session of Parliament progresses. My sense is that though the internals are not okay within the market, the macro situation is clearing up quite nicely.

Q: Are stocks like Mahindra and Mahindra and Maruti playing 'catch-up' with the two wheelers space now?

A: I think so. The October numbers really surprised people. Considering the high prices of petroleum product, this demand does not seem to dry up in India. In the US for example, when interest rates went up in the last one year, there has been a slackening of demand for automobiles. But the wealth effect is so much in India that even though the interest rates have firmed up slightly, the four wheeler industries are just going great guns.

Q: Is Gujarat Ambuja a "buy" at Rs 80-Rs 81?

A: I think so. Gujarat Ambuja had a disappointing last quarter. But it is coming up very strongly. They have now got a pan-Indian presence and are also the most efficient producers of cement. So Gujarat Ambuja is catching up, not surprisingly.

Q: How would you trade IDBI and IDFC?

A: I am very positive about IDFC . It is sitting right in the middle of the infrastructure story that is unfolding. The company has a good business model. They are very well-funded and it is a highly liquid counter. It is at a price, which is attractive to the common man.

IDBI is a stock, which is a bit more complicated because of the merger and the backlog of the old NPAs. But still, one likes that stock. It could probably be an ICICI Bank in the long run. It is good, but not a immediate "buy."

Q: How have you read IFCI?

A: I am totally confused about that stock. People called me up to ask what should one do with the stock. I said that one should not do anything at this point because there is too much carnage in the stock. My sense is that, it is not so easy to liquidate a company like IFCI . One can probably privatise it. But to liquidate a company that was created by a statute as far back as 1948, one would have to go to the Parliament. That seems as an extreme situation, which people have talked about. The company has reduced its loan books substantially.

Q: Would you buy a stock like Mid-Day Multimedia right now, at Rs 96?

A: There is this news of BBC coming in. I think that the whole media space is right for picking, if one can pick the right stock. I can see so much happening in the media space-FDI, takeovers, strategic investments and buy outs. Therefore, one has to make the right call.

This sector is not based on earnings, multipliers, book value or EV to EBITDA. It is a bit like retail. So if somebody like BBC is coming into the radio space, I think that radio space is going to explode in India. It could be a great buy.

Q: What would you do with Ranbaxy?

A: Ranbaxy has been bad, as we have discussed several times earlier. The bad news flows do not seem to stop on the stock. There were some bottom pickers who went into the stock. Maybe they picked up the stock at Rs 630-640 levels. But, we have to get the company to work out a revenue model and growth in revenue. Only then one can get into the stock. There are so many better picks in the pharma space.

Q: What is your sense of sentiment at this point? Has anything turned around given the volatility we saw in the past 2-3 sessions, or are people a lot more comfortable with the markets this time. It has run up to 8600?

A: The sentiment was not good in the first week of November when we saw that huge rally. Many of us were saying that the bull market is not yet over. But a typical investor was hit so hard, especially in the derivatives in October. They took time to come back into the market. So I think that they lost out a little bit on the first 15 days. But in the last one week, I am finding people a lot more relaxed. They are getting into the market, but clearly into the large caps.

Q: You like the oil companies but after their bounce they seem to have gone quite once again. Are they gathering steam for the next leg of the rise or is the rally fizzling out?

A: They are sort of consolidating but I think the worst is over for these three. The budget will be re-looking at the entire plethora of cross subsidies, duties etc and refining margins but my call is that whatever changes are brought about would be beneficial for these three. I think things would get better for the refining companies.

Q: What is your view on ITC?

A: ITC is meant for all seasons. But it is getting competition from Tata Tea .

Q: Is there any stock specifically in the hotel space, which strikes your fancy?

One space that people have not noticed too much and which will do very well, is hotels. This sector is really at the center of this great economic activity, which we are seeing in this country. There is a basket buying for hotels at present.

If a person is sweet and nice, then he will buy Indian Hotels . If one likes a bit of excitement in life, then he can go for Hotel Leela . Though shares like East India Hotels and Asian Hotels lack volume, they have solid assets. One can also look at Taj GVK , which had a huge run up in the last two years. These are the four to five stocks, where one can  put in money.

Q: What do you like in midcap technology space? Aztec has made a nice move and yesterday it was Polaris , which made a nice move. That space seems to be livening up again.

A: We have been buying Subex since a long time in our portfolios. I like the product and nature of the company. I like i-Flex . Even after the Oracle pricing built in, it has some more to go. These are very high quality companies. I also like Hexaware . They had a slim last quarter. But I think that the markets would have expected that. It is at Rs 102-103 levels. There could be a strong upward potential in the stock. These are some of the stocks that we are looking at.

Q: Where do you stand on Ispat?

A: On an overall basis, Ispat is not a "buy" because the steel industry is passing through a tremendous pricing pressure. Since Ispat is not in the same league as Tisco or Sail . So it would be more affected. But having said that, this restructuring is so ridiculous that a savvy management like the Mittals will wake up. That means there is no great stake in selling it. One should just hold the stock and see what happens. Let the turbulence pass.

Q: Titan has been the mover in the consumer durable space. But is there anything as a space that you think has a story and should be looked at more carefully at this point?

A: In consumer durables, I do not have a great fancy because all the market leaders are all unlisted companies like LG and Samsung. One could be tempted to talk about Videocon , but I resist the temptation. I am one of those people who would let Titan pass without making much money on it.

Q: What is your view on Tisco and Hindalco?

A: For Tisco, I am getting a bit worried. I have been talking to senior people in the industry and the government about steel sector. There is a lot of mayhem that might happen in future. China, that used to be guzzling imports of steel, is today a large exporter. This has put pressure on the entire steel industry around the world. Though Tisco  is a very efficient producer, it is going to get the head wind of that.

Hindalco is a different story. It is quoting at an all time highs. It will continue to be good for the next two to three quarters. According to me, the best metal story is Hindustan Zinc , because zinc is one non-ferrous metal. I am bullish on it for some more time to come.

Q: If you were structuring a portfolio, what would you do? How much would you keep in index stocks now and how much in midcaps?

A; We have standard portfolios. We also have aggressive and conservative portfolios. But in our standard portfolios, in last two months, we have definitely moved a lot more to large caps. As far as the Index-Nifty stocks are concerned, we have mpved to about 60% and we may go to 65% in December.