Sensex to rally 1000 points in four months: PN Vijay

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The strong rebound of the indices in the last hour of trade on Wednesday is a clear indicator that global cues have become a non-deterrent factor for the Indian markets. But is this upmove here to stay?

Despite tremendous amount of bad news pouring in from across the globe the Indian bourses have held up, and, this trend, is expected to continue, portfolio manager PN Vijay tells CNBC-TV18 in an exclusive interview. "Considering the fact that inflation is softening, and with the base effect coming in, there is every possibility that the markets will make a sharp move up. They will rally 6-7% in the next four months, which translates into a 1,000 points rise on the Sensex and 350 points for the Nifty."

Below is a verbatim transcript of the interview. Also watch the video.

Q: Are you bullish from these levels or would you rather be building cash levels above 5,500?

A: I am getting more and more bullish at this level. It's slightly moving away from the pack, which is sort of predicting a rangebound with an uppish bias. The sense I am getting is that across the world there is bad news pouring in-Japan has had a disastrous GDP growth; China has soft landing, which got everybody worried and the problems about the labour union etc. Europe recovered but it went through a very bad sovereign default issue and in the US, we haven't had a single piece of good macro news for the past one month.

In spite of all that its amazing how markets are holding up, buyers are getting intuitive feeling that probably this is the time to enter in and get good bargain towards the next two years and India of course the picture is getting better; inflation is softening and base effect coming in. All this considered we are getting ourselves into a strong position to make sharp move up.

Last year we made about 19%, August-to-August, which is not too bad considering the level of uncertainty in the economies of the world and this year if one is talking about 15-20%, we are going to get about probably 6-7% in the next four months-probably the Sensex going about 1,000 points and the Nifty going up about 350 points.

Q: We have faltered in the past though around those levels. Is it looking like clean sweep to you or do you think it will be a market that will test one's patience but ultimately trend higher?

A: It has been testing ones patience for quite a while but now there would be a trending market. It's very unusual for India to be not trending for so long though the big picture still is that we made decent gains last one year. I think we will stop getting on everybody's nerves-sort of trending thing.

True, this being, such a speculative market in terms of intraday trade, derivative trades, every move is sold into and every decline is bought into. That's natural for a market of this internals. But I would say that over the next three-four months we are going to get decent month-on-month gains.

Q: Any discomfort about the midcaps in that part of the market maybe assuming any bubble like proportions?

A: Not really. I looked at the CNX 100 yesterday; we had an advanced decline of almost 9:1, which means that the activity that we are seeing is not in penny stocks. Some of the midcap which we saw moving up you wouldn't call them penny stocks by any stretch of imagination-not by their marketcap and by the volumes.

True, there is always this fear in India anecdotally when things move up a lot, suddenly research houses spring from nowhere and start recommending stocks which are Rs 20-30. It's not happened yet but let's see, we may at some stage come to that and also heartened by the IPO activity. I think Engineers India didn't go the way of NMDC and NTPC, they had a good subscription and the after market has been good in Engineers India which gives me a comfort that more and more retailers coming back after having been shying so long.

Q: What about the last two lists SKS Microfinance and Bajaj Corp both got a decent start. Would you buy them from these levels?

A: SKS is a very interesting microfinance company listing. I worry a lot about the internal control and NIMs that these people are talking about and the pricing is a bit too high. So I look for a better track record and the banking and financial sector is having such a roaring time, every outlook for every organisation right from HDFC and SBI down to the smaller ones is so good. I am not in a mood for bargain hunting.

Bajaj Corp is of course a very good name; it's been around for a long time, it's a good company that will probably go into the midcap portfolios of many fund managers. The microfinance company one would like to wait for a bit more of a track record.