Mkt to do well in June; like CESC, IOC: PN Vijay

There is no need to take an alarmist view of the market, says PN Vijay of askpnvijay.com. He feels June is not going to be a bad month for the market.

"Gross Domestic Product (GDP) data was at 4.8 percent. 10-year bond yields are firmly fixed around 7.40-7.42 percent, so there is nothing seriously wrong with the market. Interest rates are trending down. There will be volatility but,  one can look for better times in June as compared to May," he said in an interview to CNBC-TV18. Among sectors, he is most comfortable with oil and energy, because the macros for the entire sector have improved tremendously. Here is the edited transcript of his interview with CNBC-TV18 Q: This week went by. It was flat on headline index, but there was quite a bit of nervousness that we saw on Friday. Do you think that this paves the path for further downside in the market as we head into June? A: Maybe in the first couple of days of the coming week, we may have some bearish feeling, but I do not really believe that June is going to be a bad month because of two things. One is that the economy is in anemic recovery. The Gross Domestic Product (GDP) numbers are showing that, so people are feeling there is a bottom, though they do not know how fast the top is going to be. Secondly, interest rates are trending down. 10-year bond yields are firmly fixed around 7.40-7.42 percent, so there is nothing seriously wrong with the market. The earnings season has not had too many ugly surprises and people are still sticking to their 15 percent-odd incremental earnings in FY13-14. So these factors will give a base to the market. I do not think there is going to be a precipitous fall to the market more than maybe 50 points on the Nifty or so and I think the dollar is extremely overbought. The rupee will slowly slip back to at least 56 by next Wednesday-Thursday. So I am not taking an alarmist view of the market. It is a very volatile market. People have to be very careful, but one can look for better times in June as compared to May. Q: After looking at what happened on Friday, it would be tough to take a call to buy in this market. But if you had to allocate some money and accumulate at lower levels what is the sectoral approach that you are using? A: I am most comfortable with oil and energy, because the macros for the entire sector have improved tremendously. If you can think of one good reform that has happened in the last one year I would not call it multi-brand retail, but the freeing up of diesel and Liquefied Petroleum Gas (LPG) gas. Market has not factored in enough. That has the positive implication for Oil and Natural Gas Corporation (ONGC) - the three marketing companies. So I feel that they are all good buys and even Reliance after the latest news of a very strong gas discovery in the KG basin one needs to look at the gas business again. So this is one sector where you have very valuable companies, very strong companies and you could look at that sector even now early next week to build up long-term positions. Q: I am going to name four stocks for you that had a good run last week on the back of solid earnings and I wanted to tell me if you would put your money incrementally into any of them - Tata Motors, Sun Pharma, Coal India and Bharat Heavy Electricals (BHEL)? A: I would really use declines to buy Tata Motors and to a lesser extent Coal India. Tata Motors has become a very strange company. It is very difficult to think that it is a Jaguar which is really driving that company. If you look at the numbers in Jaguar they were very, very impressive, otherwise we would not have got an overall consolidated numbers that Tata Motors likely got and what is happening in Jaguar is they are building up the volumes tremendously in China. The new product launches have been good and Europe is also holding up and incrementally. Let us be honest, things cannot get worse for Tata Motors domestically as the GDP slightly starts going up from this horrendous 4.8 percent level to 5.2-5.3 percent. There is a very strong correlation between commercial vehicle sales. So I would use the decline in Tata Motors to add to long-term positions. Coal India came out with very good numbers, I am very impressed. I think that coal controversies are all falling out and we are getting some very strong pricing moves by the government and Coal India. While that might hurt the steel makers Coal India would show both volume and price growth in the months to come. It is a good long-term buy. You may not get fireworks there, but it is a decent buy. Sun Pharma is a great stock, but it has gone up too much. I think the valuations are getting a bit troublesome and the fourth is Bharat Heavy Electricals (BHEL). You have to be a brave man to buy BHEL right now. I would not near that. Q: What would your recommendations be for next week either for a weekly trade or even something to buy into for longer term? A: I am not too good at predicting weekly trades, I am perhaps slightly better at predicting longer term trades. One is Calcutta Electric Supply Corporation (CESC). They came out with very decent numbers and what is happening in CESC is that they have got a whopping price increase from the West Bengal government for the same type of volume of units of electricity they supply is going to translate into very good profits. Secondly, the cash burn in Spencer's which is the retail chain that they have as a subsidiary of CESC, the cash burn stage is practically over and 14-15 should be strong numbers coming in from Spencer's. Let us not forget Goenka has gone out and said that he will be looking for Foreign Direct Investment (FDI) in Spencer's sooner than later. Thirdly, they are doing some capacity expansions which will fall into place and there could be fair amount of merchant power selling from those capacities. Right now the capacity is being spread only into the Calcutta grid system. So these are all strong positives and the share has been behaving quite well in a rather weak market. So I like CESC for some three to six months range. Second is Indian Oil Corporation (IOC). IOC came out with very decent numbers. If you look at that the under-recovery story has been very, very well curtailed. Government has released a huge amount of subsidies. They have got close to hitting distance from the market price of diesel versus their cost of diesel, so it is only a distance of Rs 1-2 which may get corrected in next two months and for LPG also they are getting away with fairly good price increases. So on the ground, IOC's numbers are going to get better and better unless the Brent shoots above USD 110 or so, then you have issues. IOC is an asset-rich strong company with 35 percent market share in petroleum product distribution. So I think you could happily buy it around Rs 295 or so. You should get about 20 percent in the next 7-8 months.