Mkts to test Jan highs in next few weeks: PN Vijay

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Mkts to test Jan highs in next few weeks: PN Vijay

In an exclusive interview with CNBC-TV18, Portfolio Manager PN Vijay spoke about his reading of the market and the possible road ahead.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » RELATED NEWS Odds of mkts hitting new highs in 2010 low: Morgan Stanley Experts see Nifty at 5300 levels, differ on timing Nifty may cross 5300 by April: Antique Stock Broking ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets Nifty BSE | NSE 29/05/12 Are Mutual Funds betting on Nifty? Other Stocks in this news Hindustan Zinc |

In an exclusive interview with CNBC-TV18, Portfolio Manager PN Vijay spoke about his reading of the market and the possible road ahead.

Below is a verbatim transcript. Also watch the accompanying video.

Q: It has been a good week post the Budget, the second best in 10 years; do you think it's good enough to take us back to January highs?

A: Every possibility, I think the market was happy that when it went through the fine print in the Budget there was nothing substantially different from what they heard last Friday, so the rally continued. Of course we had some good global tidings coming, some sort of perception that the Greek debt crisis maybe easing with some hard measures by that country. And then, on Friday, the jobs report from the US was quite good. So the setting is all there for India to touch the old high of January, I would be very surprised if we don't do it in the next few weeks.

Q: If it does get there do you take profits once or do you think it's good enough to break us past that range because we have been in this 4,700-5,300 range for nearly six to seven months now?

A: That, to my mind, depends on two factors in India. One is the speed with which inflation would come down and to that extent influence RBI's policy coming towards the end of April because the way we see, agriculture production inflation would come down quickly due to base effect and grain prices in about a month's time. But, on the other hand, fuel and manufacturing prices are going up. If there is a satisfaction to the RBI that the inflation for the next fiscal year is in the region of 6%, I think they will be fairly relaxed in their tightening, probably a little bit but not too much that will again give a strength to this rally above 5,300.

The second is earnings from the corporate sector. This market is not cheap-it was very cheap this same time last year. Our house estimate is that we are probably looking at an earnings per share (EPS) of around Rs 1,050 for the Sensex for 2010-11, which means we are already at 16 plus next years earnings-so its not a cheap market you could have great stock pickings but the market as a whole seems to be fairly fully valued.

The April numbers that we get from the corporate sector are very important, if they give us enough satisfaction that there could be an earnings upgrade of 10-15% then this market would take off. So my sense is that the bull market is not under threat, at best it may correct to 4,800 or so but for it to rise above 5,300 apart from global liquidity flows we require a benign inflation environment and strong corporate profit growth.

Q: If you had to bet of either of the extremities over the next three months or so, just the next quarter perspective, do you think the chances of breaking 5,300 on the way up are higher than breaking 4,800 on the way down?

A: Almost yes because markets work on incrementally, According to me, incrementally all three factors corporate profit growth to the lowest level, inflation and interest rates at the middle level and GDP growth at the top level are angled upwards, which means that every fall would invite bargain hunting by the big boys, the insurance and the FIIs. So one would say the probability is probably that we are sort of continuing this trend which we have rather than make a sharp dip of 7-8% down.

Q: What can lead it past that level of 5,300 because there is a lot of supply, probably because of valuation concerns which come in at 5,300-can you think of Reliance and ONGC pushing it past that or do you think it will have to be banking or infrastructure, the two other heavy weight sector that can do the needful?

A: It is sort of strange conundrum that the leading actors of the play are not acting too well but the side or supporting actors are superlative. So you are really hoping that the lead actors will go on. I don't think ONGC is so significant now, after the Nifty went, liquidity driven ONGC's weightage has come down to less than 4 but Reliance is very important, so is Infosys, weightage of those have gone up.

So unless we get leaders hit from the top, just an odd Bank of Baroda or a PNB or Sterlite cannot take these levels above 5,300, we need good traction. There is a dichotomy here again-what will give traction to these two guys?-strong oil prices, when oil prices become strong then domestic inflation becomes a worry. So it's all going to be quite interesting if you are a fundamental analyst.