Portfolio manager PN Vijay says market is expecting some sort of monetary loosening from the Reserve Bank of India, given the fact that inflation has not risen dramatically for quite sometime now. "The government has shown its intention to cut the fiscal deficit quite strongly. It is a great opportunity for RBI to do monetary loosening," he told CNBC-TV18 in an interview.
Below is an edited transcript of PN Vijay's interview on CNBC-TV18. Q: The first trigger for the November series will be the RBI policy. What should the stock market expect from that?A: Market can expect some sort of a monetary loosening, given the fact that inflation is not going up and this is the seasonal time in India wherein inflation keeps low for the next four-five months. Inflation normally is quite low, and more importantly, the government has shown its intention to cut the fiscal deficit quite strongly. So there is some opportunity here for the RBI to get the economy back on track.
And if you look at the corporate indicators also, there is a lack of demand—that is for sure—if you look at the consumer durables and automobiles sales etc. You need to push demand. So it is a great opportunity for RBI to do monetary loosening. Last time they did a CRR cut, so probably 25-50 bps cut in the repo would instill confidence and to some extent the market is expecting that if you see the action in some other bank counters in the last few days. Q: You have seen a couple of public sector numbers from Oriental Bank of Commerce (OBC) yesterday and today the big one Punjab National Bank (PNB). Do you see earnings for PSU banks being patchy, good or bad? Do you expect them to exhibit asset quality stress?
A: I think patchy could be the correct word. This is because if you look at OBC’s earnings, they were robust on every count, whether it is net interest margins or the performance on the asset level. But now what is happening on the asset quality in PSUs is single chunks are taking away NPAs. So it is possible that some bank like PNB make a bad loan. But Bank of Baroda was not great but it was not too bad either.
It is quite possible that it will be patchy and surprising. Even after working in the same environment private sector banks have managed to keep their heads above water. All four of them (reported so far) have shown remarkable asset quality and profitability, probably ICICI Bank will follow suit. So the market is playing a bit more for the private sector banks and it looks justified. I am not that worried about the PSU banks, the pace of bad loan accretion has surely come down but you could get some ugly surprises. Q: You have been of the opinion that M&M is the safest bet in the auto space and that call has worked well, would you take your profits now or do you expect to see more of an upside post the numbers?
A: This is not the time to reduce your exposure on auto space, atleast till we get the credit policy. I congratulate M&M on a very tough and challenging macro conditions to report such decent numbers. Even tractors have not seen the type of traction they would have but the utilities have held up. If you have the risk appetite, you can continue in auto. Plus as we go in 2013, the bias would be for lower interest rates. And that bias would definitely support M&M because a lot of its sales is credit driven.
Q: L&T in the last two months has moved from Rs 1300 to Rs 1700 where do you see L&T head from here? The company has posed a 25 percent rise for a nifty company which is terrific, do you see more upside there?
A: Larsen and Toubro is a classic stock. They have belied the pessimist and have come out with strong numbers and order books, better than estimates. So, there is a good traction in their business and will continue to be a long-term blue chip for portfolios. The stock has outperformed the market considerably and it is not the type of stock that usually does. Though one would argue that last time when the Sensex was around 18500, L&T was a lot more than where it is now. So on a very long-term basis it has underperformed the market but in the near-term it has out performed.
People may take some time to book profits and then it might hang around like the market did in October. So November may not be a great month for L&T because all the good news is built into the prices. But I would use every major decline in the stock to build a higher position in L&T. Q: Two other stocks which will be on the radar today are CESC and Firstsource, how did you react to that deal?
A: The deal doesn’t make sense from CESC’s point of view. They have huge cash but why would they use it to buy something like Firstsource which is not EPS accretive, though Sanjiv Goenka talks otherwise. There are a lot of investments that need to be made from the group.
Historically CESC has always been the investment vehicle of the Goenka’s. If you see other acquisitions they bought Spencer’s many years ago. They have been using CESC as a vehicle which is not good. In the good old days it would make sense but these days the markets like core competencies. So, this will not go down well with the market and I as an analyst, is slightly disappointed that Sanjiv Goenka should have done that. Q: In the FMCG space you have both HUL and Dabur that report their numbers. Which one would you eye today?
A: Dabur, I cannot comment because I am on the board. HUL should do well. They have growth and whatever they have done internally has been good. They have been working on it for a long time and the last quarter showed that the market’s high expectation from HUL has not been belied. Ofcourse it is a slightly riskier stock than ITC, which keeps delivering monotonously good numbers.
A: Larsen and Toubro is a classic stock. They have belied the pessimist and have come out with strong numbers and order books, better than estimates. So, there is a good traction in their business and will continue to be a long-term blue chip for portfolios. The stock has outperformed the market considerably and it is not the type of stock that usually does. Though one would argue that last time when the Sensex was around 18500, L&T was a lot more than where it is now. So on a very long-term basis it has underperformed the market but in the near-term it has out performed.
People may take some time to book profits and then it might hang around like the market did in October. So November may not be a great month for L&T because all the good news is built into the prices. But I would use every major decline in the stock to build a higher position in L&T. Q: Two other stocks which will be on the radar today are CESC and Firstsource, how did you react to that deal?
A: The deal doesn’t make sense from CESC’s point of view. They have huge cash but why would they use it to buy something like Firstsource which is not EPS accretive, though Sanjiv Goenka talks otherwise. There are a lot of investments that need to be made from the group.
Historically CESC has always been the investment vehicle of the Goenka’s. If you see other acquisitions they bought Spencer’s many years ago. They have been using CESC as a vehicle which is not good. In the good old days it would make sense but these days the markets like core competencies. So, this will not go down well with the market and I as an analyst, is slightly disappointed that Sanjiv Goenka should have done that. Q: In the FMCG space you have both HUL and Dabur that report their numbers. Which one would you eye today?
A: Dabur, I cannot comment because I am on the board. HUL should do well. They have growth and whatever they have done internally has been good. They have been working on it for a long time and the last quarter showed that the market’s high expectation from HUL has not been belied. Ofcourse it is a slightly riskier stock than ITC, which keeps delivering monotonously good numbers.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
