Greek results, RBI rate cut, US data to lead June: PN Vijay

Portfolio manager PN Vijay of www.askpnvijay.com says yesterday’s fourth quarter GDP number at 5.3% was a rude awakening, something which market participants weren’t expecting. In fact, the consensus was it would be a flat 6.1% just like the third quarter. “It is interesting that there has been literally zero growth in manufacturing. So it is a bad one,” he says.

Vijay says the only good takeaway we can have from this is that if this doesn’t send an electric shock down the establishment because unless you improve core investment and get production going, even your relatively stronger service sector is going to fall off because service sector piggybacks on manufacturing and industrial activities. Below is an edited transcript of his interview to CNBC-TV18. Watch the accompanying video for more. Q: How is June going to look according to you?
A: June is going to be very important because globally at three levels, one is expecting substantial moves. The US for six weeks in a row has got bad job numbers. So we are expecting some sort of quantitative easing especially in election year.
Then this big move by the EU Commission which seems to have isolated Merkel from the rest of the Western community of directly lending to banks rather than to a sovereign which has now been approved by the EU Commission. That augurs well to take care of Spain’s requirements and Italy over time without hitting the debt to GDP targets fixed by the ECB a year ago.
Thirdly, of course the Greek elections which is like an IPL final. So big things are happening in India too now more and more people are talking about after State Bank of India’s (SBI) chairman who came out and said we are expecting a CRR cut because it doesn’t making any sense for the RBI to push out Rs 15,000 crore every week through OMOs and then suck it back through the foreign exchange market. This is a silly thing. It is just a number.
So probably more definitive permanent liquidity injection into the banking system through a CRR cut, China has done it five times, Brazil has done it six times, India should start doing it too. All those are expected but right now the gloom and doom on the street is not reflected in the index. Q: Some of the banks held out though yesterday in what was otherwise not a great market. What would you do with some of these banking faces? What would you expect to happen in the next policy meet from the RBI?
A: I think banks are holding out because the results were not that bad. If you look at banks on a pie of 100, the PSU banks which are about 25 held out, ICICI Bank, HDFC Bank, Axis Bank, IndusInd Bank, YES Bank, which we all have to track. On the bigger 75, I think there were more than half of them which are pretty good led by big boy State Bank of India (SBI) and then Bank of India (BoI) which is not too bad, Bank of Baroda (BoB) was not so good, Central Bank was terrible. So there was a little positive surprise about the banking sector which is underpinning the stoppage of selling beyond a certain level.
We saw for example the way BoB bounced back handsomely from Rs 650 to touch Rs 700 in the last six-seven trading sessions. People are value investing and buying, there are not too many sectors where you get at one-to-one price to book and four-five times current earnings. So value buying is taking place.
Apart from that, in the last few days talking to bankers one is sensing some sort of a CRR action but definitely not a rate action. So all of this is underpinning some amount of optimism in banks but purely from valuation, there are a lot of long only fund managers who are looking one year ahead and picking up good bank stocks right now. Q: What are you doing with Tata Motors now? The stock has corrected from Rs 320-230. Are you buying it here or has the story changed?
A: We are planning to buy it. It is a little part of our core portfolio because the results were a mix bag but they were not so bad. The stock fell from about Rs 285 to Rs 230 which is what we have seen in the market. Market votes one way totally on a stock. Long-term investors would take at least six-12 months time span. Tata Motors looks good because again one is underpinning that in all our excitement about the Jaguar-LandRover (JLR) story, we are losing site of a very strong domestic business franchise that the company has.
It looks now that diesel price increase is not going to take place tomorrow. So there was that fear. I think the market sort of recognised a slightly flattish performance and overreacted in the bearish sentiment. So Tata Motors would be one of those nice little picks to do around Rs 225 levels probably for 30% appreciation in the next 12 months, which means an outperformer vis-à-vis the Sensex. Q: We have talked about Kingfisher Airlines (KFL) but what do you do with the other faces in that group - the numbers from United Spirits and UB were very poor this quarter?
A: On Kingfisher, though many analysts were sort of recommending bottom fishing on various channels at about Rs 20, I felt we hadn’t seen anything yet. I am pretty bullish on SpiceJet and I should say I have personal holdings in that firm. That is my disclaimer. When the recovery starts through the ECBs being allowed for SpiceJet, they have natural hedge through export earnings and ATF purchases directly and ATF prices globally have fallen off a lot, all those would work from the operating margins. So relatively the balance sheet of SpiceJet is cleaner in terms of the debt equity gearing.
So among the three hotly related stocks, Kingfisher, Jet Airways and SpiceJet apart from optically being low priced at about Rs 30 or so, my best bet for a huge trigger in the event of an FDI in civil aviation, which is the least controversial among the big bang moves which market is expecting from this government that could be a kick up.
Incidentally, SpiceJet is the only company that has gone out and said they are already talking to foreign strategic investors. I would still avoid Kingfisher though it is available at par and go for SpiceJet if one needed a slightly risky exposure to the civil aviation sector.