PN Vijay's top sector bets for pre-Budget trading

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PN Vijay's top sector bets for pre-Budget trading

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

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » RELATED NEWS Mkts may remain choppy ahead of the Budget: Religare MF Mkt evenly poised; to remain choppy until Budget: Edelweiss 2010 Sensex range seen at 15000-19000: Ambit Cap 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

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

He also gave his strategy for pre-budget trading and his top sectors bets.

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

Q: It's gone a bit sideways for the market. Do you reckon the worst of the correction is behind it or its just biding time before another big move?

A: It's surely biding time before a big move whether it's down or up. What is happening in the last three weeks is that the markets have been very edgy due to the fact that there is feeling that banks problems and sovereign problems, which are out of the way, maybe coming back because of the pigs crises and specifically Greece. So suddenly the risk appetite seems to have ebbed away among global investors who are worried about the financial system.

I think European Central Bank (ECB) is doing a good thing. I think regulators have learned to be very quick of the feet in the last two years, playing more on sentiment than on fact because they have realized that markets move more on sentiment. So the action has been fast, so there is some calmness in the markets. So for next one-two weeks, it's difficult to say, also in India as we have the Budget coming. But looking at the three-six months the view is lot clearer and a lot more positive.

Q: What about the entire flow situation and your assessment on that because we have seen that the foreign institutional investor (FII) selling pressure has intensified at least in the last one week or so? Do you think that pressure will continue?

A: I do not think so. The FII flows have not been that much the way it's made out, in fact whole of January the FII sold only Rs 1,200 crore worth of stock and the market fell 6.2%, considering we trade above Rs 100,000 crore, this is very minuscule. I think the retail sentiment is very negative because even if we had the FII outflows, we had the domestic inflows, so the institutional flows in this market right from 2010 have been positive strangely enough.

The retail sentiment is pretty bad right now and we need some a few days of nice, calm trading for the retail investors to come back. I have a hunch that the global fears are getting ebbed away and probably fundamentals will take over. It's sort of a long call to make, but if Greece blows away and pigs are not such a big thing and calmness would return and then probably the retailers would feel more relaxed about the market.

Q: Domestically though interest rate sensitive are bearing very big brunt on the back of any possible impending policy change. What is your view on some of these sectors that have collapsed possibly banks?

A: Yes, banks are fighting with inflation, interest rate hike expectation. We had this big fear before the policy. The policy came at 75 bps increase in reserve ratio (CRR) - they left the rates unchanged. That was sensible because strangely enough even in this inflation the credit off-take has been okay and the money supply is reasonable. It's around the median 17% level. So there is no monetary reason for Reserve Bank of India (RBI) to tighten on the ground.

But if headline inflation keeps bogging like such numbers, the fear is that sometime they would tighten. My own feeling is RBI is done with the tightening for sometime because today the rulers in RBI and in government are more leaning towards earnings side of growth. It's a very big sea-change in RBI administration also.

They tend to follow the Ministry of Finance (MoF) line more closely with ex-bureaucrat heading it. So I do not think RBI will see Friday 6 pm decision to hike in interest rate. But still the banks are feeling that very much and I think banks are getting to be underperformers and would remain so for some more time.

Q: Tactically, how do you approach this pre-budget run for the market? Usually it's an extremely eventful time but this time we are going in a little more quiet. What is a good top buy to keep right now?

A: The sectors to get into are where the fears are maximum. For example, there is whole lot of fear about construction - people are afraid that the projects are not flowing through fast enough etc. But on the ground things are pretty good for them and also sectors like pharmaceutical, which are coming into their own - not the large ones but the midcap ones. They are having tremendous business models something to compare with Infosys and the Wipros of the world about 15 years ago. They are really climbing up.

These sectors, which may not be very much affected by the budget because the single big fear I have is the tax collections are so good, the public sector undertaking (PSU) disinvestment is so good - somebody in the government, even Dr Manmohan Singh may say, remove all those excise duty concessions and custom duty concession we have done. So then we will have cement, auto and whole lot of them getting a beating.

On the run up to the budget stay clear of those budget related risks and be prepared for a nice run. One thing I have seen in last several years, if in the next 12-months, the consensus in the economy is going to grow at a bigger rate than it was doing before - there is a bull market. If the next 12-months, the GDP is going to be growing higher - there is a bull market. There is no exception to this. So if in the next 12-months if people feel we are going from 7.2% to 8.9% or whatever, at some stage the positivism will return to the markets.