Why is Bowen Capital bullish on Bajaj Auto, HDFC?

In an interview with CNBC-TV18, Aadil Ebrahim of Bowen Capital Management said,"If you look at the month of March so far, the Indian market is one of the best performing markets globally."

"We are adding high quality blue chip names where there is visibility. There is Bajaj Auto, there is HDFC and some of the core names. We are building up positions because they are about 30-40% undervalued.We recently took a possession in Larsen and Toubro because it corrected significantly." Below is the verbatim transcript of Ebrahim's interview with Latha Venkatesh and Sonia Shenoy of CNBC-TV18. Also watch the accompanying videos. Q: What's your sense after all the events and numbers that have hit the Indian markets, we have had a budget, which has promised a 4.6% fiscal deficit, which has been viewed with some skepticism. We have got the IIP (Index of Industrial Production) numbers just now, which was a tepid 3.7% industrial growth in January and very weak investment numbers or capital goods numbers. What's your sense now, is it that the bad news is in the price or Indian markets not still fallen enough to discount the bad news? A: If you look at the month of March so far, I know it is --- sort of early days. The Indian market is one of the best performing markets globally. The government bond yields, the 10 year yield has fallen from about 8.2% to 7.9%. The food inflation scare is not completely over. So, the negative news that hurt the markets in January, the food inflation, yields sort of rising, higher interest rates that scare is sort of now over. We now have to focus more on global events. Which is why the Indian market is sort of caught up a bit but now you see sort of a stagnant performance. Though there is better news coming from globally and that is really determined of what is happening in the Middle East to an extent. Q: How are you interpreting the fall in commodity markets across the board, if you looked at Copper, Wheat, Sugar, Rubber, across the board we have seen some fairly seminal falls in the last 24-48 hours, is this the start of a trend because the prices had risen much or do you think this is just a technical correction? A: Last night trading was bizarre because the developed markets sold off on the back of downgrade to Spain and also on the very shockingly low Chinese export growth numbers came at 2.5%. The Chinese new year effect you got to sum up January and February and the export growth was more reasonable at about 25% which will probably be the new norm going forward. If the global markets sold off because of slowdown in Chinese export growth is completely misguided because of the Chinese new year effect. If we really believe that global growth is strong and for all accounts that is what we are seeing. We are seeing strong growth in US, recovering growth in Europe, the Chinese export growth numbers will pick up in March. The Indian export growth numbers came in at 15% in February. Some of it may have to do with some factories relocating and selling stuff from India because the Chinese factories are shut down. We are seeing strong global growth numbers, so I am a bit surprised by the sell off in the soft commodities. But oil for example, obviously is  determined by what is happening in Libya. Q: You were speaking to us about 2011, what is the estimate of how our growth looks like because given the kind of macro headwinds; do you sense that we could retest those earlier lows that we saw? Or do you think that all of the negatives have already been priced into the market? A: If you want to retest those lows you probably need to see food inflation running back up again to 15-20% and continued increase in oil prices USD 120-130 per barrel north. For me the first scenario is very unlikely. The food inflation scare is over and the second scenario who knows. It is difficult to gauge that you are having a lot of negative global newsflow and with this earthquake now clearly adds to that. Q: The inflation scare is more or less over and we really don't know how crude will head from here on, does it makes parts of the market attractive? What would you go down there and buy? A: There are lot of sectors in the market that are very attractive based on the growth prospects. We are not going in gung-ho yet because of lot of this global uncertainty but we took an opportunity about two-three weeks ago. To start to add back to India positions because we were clearly underweight for about six months. We are adding high quality blue chip names where there is visibility. There is Bajaj Auto, there is HDFC and some of the core names. We are building up positions because they are about 30-40% undervalued. Q: What about the metal space, given the scenario that was seeing across China reigning in of inflation, crimping of demand possibilities etc? How would you approach the metal sector now? A: We have no exposure to the metal sector because it is extremely difficult to forecast the earnings because of the cyclicality. These prices can move very violently based on one economic data coming out of China. So, it is completely out of our radar screen for these exact reasons. Q: Anything else that you would pick up? We know that Bajaj Auto and HDFC and Infosys are stocks that Bowen already has. Would you be attracted to buy something outside say in the banking space or in the infrastructure space? You find value there? A: We recently took a possession in Larsen and Toubro because it corrected significantly. This is based on the fact that there is some concern on the growth of the order book with all the environmental clearances and land acquisition and Reliance not scaling up their gas production. But we sort of felt that correction, all that news in the price and if Larsen does come out with a strong quarterly order book then the share price can recover. It is very unlikely to say whether it will hit its peak in the next couple of month. But if it hovers around this level we can look to pick up more.