RBI must intervene to help rupee; buy Mah Satyam: PN Vijay

Portfolio manager PN Vijay does not see macro signs leading to a rate cut. Instead he hopes for RBI intevention via open market operations (OMO) to stop rupee from falling further. He advocates buying Mahindra Satyam in the midcap IT sector which can give 20-25 percent returns. 

Below is the edited transcript of PN Vijay's interview with CNBC-TV18 Q: There was some resurgence in the banks yesterday, a function of having fallen too much. Do you think the market is slowly beginning to put in some hope on what the RBI could do when they meet next? A: It is more a question of trader’s short covering. From the macro indicators there is nothing to indicate that the Reserve Bank of India (RBI) will surely cut rates. Inflation is falling but on the other hand, the rupee is depreciating. This means that imported prices of crude etc are going to put pressure on the economy. There was no great news for the banks yesterday but they have corrected considerably. Even blue-chip private sector banks like ICICI Bank and Axis Bank had corrected considerably. There was some short covering and value buying taking place. It is still a very mood point whether the RBI will cut rates in the June policy given the contradictory forces of weak rupee on one side and very weak growth on the other. Q: What do you expect to see from the government at Delhi with regards to the rupee? It has fallen to alarming levels from the start of May. Some token moves have been done with regards to gold imports etc but is it hitting alarm buttons now? A: The rupee has depreciated a lot. The last thing the government will do is to come on television or talk to experts like us and tell us what they are going to do. There is always an element of surprise in foreign exchange transactions of the government. _PAGEBREAK_ The government can draw some comfort that rupee is not falling alone. Most of the emerging market currencies have fallen. In fact yen has fallen more than the rupee in the last one month but that is very negative satisfaction. Gold imports can be controlled, other imports are uncontrollable. Government could talk to RBI to start some sort of Open Market Operation (OMO) in the dollar, for example in the call money markets. The RBI is doing a large OMO which has a very stabilizing aspect to the rates. Another OMO by the RBI where it sells dollars and buys rupee from banks is expected to stabilize the rupee a bit in the range of Rs 56-57 at least. Q: Anything outside of the index that you would buy from IT now, anything from midcap IT that you think is worth a look? A: Midcap IT is of course a slightly difficult zone because of the unpredictable nature of profitability. I don't know if you call this a midcap IT but Mahindra Satyam has corrected appreciably after touching close to Rs 130. It corrected all the way to Rs 102-103 and it is time for it to move up again. Most of its problems are out of the way, it is getting the traction in. If you see the EBITDA, margin has always been a problem for Satyam. But it has improved appreciably in the last few quarters. Mahindra Satyam is back in the reckoning. It used to be a great IT stock then it lost its sheen for a considerable amount of time for reasons we all know. One could bet safely on Mahindra Satyam around Rs 105 to get the 20-25 percent return which one normally expects from an IT counter. Q: Between Tata Motors and Maruti Suzuki, which stock would you be more comfortable buying from the autos? A: It would be Maruti. I am not saying it will necessarily give bigger gains but the downside is much more limited. Maruti did see a very sharp fall in production compared to last year and that had a negative impact on the stock. However, the falling yen and falling raw material costs which reflected in various strong margins in Q4 will continue right through 2013-14. If the government keeps increasing diesel prices, the difference between diesel and petrol will come down. That will be a big long term benefit for Maruti because its forte is petrol driven passenger cars where it built up its name and its fortunes.