PN Vijay says money too scared to enter infra, real estate

In an interview to CNBC-TV18, portfolio manager PN Vijay of www.askpnvijay.com, spoke about his reading of the market and the road ahead.

Below is an edited transcript of the interview on CNBC-TV18. Q: How are you reading the noise from New Delhi? Shortly after Chidambaram took over, there were a lot of expectations that things will move but we have not seen too much by way of action. Instead, the hostility and noise has picked up preventing any action from Delhi. A: The noise and the action are slightly different in the sense that the noise is coming from the Parliament. The Parliament has become really bipartisan, in the sense that every session of Parliament is getting very stormy. The election is not too far away. This is likely to be the scenario, and that will go on. I don’t think the government is threatened in any way but the BJP is very keen to get 'Coalgate' to replace 2G as the main issue before the electorate. That is one thing. Though it is interesting that Anna Hazare and his team are planning to gherao (besiege) the Prime Minister’s house and the BJP President's house on Sunday indicating that the state governments are equally involved in the coal allocations. It is all getting a bit political right now and I don’t think that is really going to dampen any efforts Chidambaram may take. I get the sense that people are talking; Mamata Banerjee, Sharad Pawar and the congress party having various co-ordinations and meetings. One needs to see what comes out of it. My own sense is that some small earthquakes may happen till September 8, when the session ends. If you want anything fairly big bang and controversial, one can expect it only after September 8. Again the big positive right now for the market is monsoon; there has been a very impressive pick up in monsoon in most of the country, especially the north-west, which is the good growing area, Rajasthan, Punjab, Haryana, Delhi, Western-UP right through August. So the spectre of drought is at least not there, there could be some crop short fall. So that could put some heart into the market. Q: Are you surprised that infrastructure is just not participating? We have had a meaningful Nifty rally but infra, real estate that block has actually been a big laggard this time around and the big one L&T included. A: I am not surprised that infrastructure is not getting the liquidity as people keep pointing out this is a liquidity driven rally and people are not at this stage going to put money where the risk level is quite high. If you see the pattern of investments people are not happy to put money where the earnings stability is not there, where the leveraging is somewhat high, which his typical of infra companies and real estate companies. They may have a humungous growth from a very low base the next two years that may happen but that will be in a fairly advanced stage of bull rally. It is somewhat ridiculous situation that people are still buying the same stocks and paying higher and higher multiplier; Ranbaxy hitting a 52-week high, Hindustan Lever hitting a 52-week high at pretty obscene valuations. The story clearly that is money is coming in but the money is too scared to enter into sectors like infra and real estate where the leveraging is high, the names are not spectacular and the earnings are quite unpredictable. Q: What would you do with something like aviations at this point in time there is a tinge of disappointment there that we have still not been able to move through on the not so controversial FDI in aviation – would you still hold them in the hope that it might happen in September? A: Civil aviation is one sector where bringing in FDI is the least controversial because it doesn’t affect the farmer or small man. There are only about 4-5 players who will be affected. So it is an easy call. It is interesting that Mamata Banerjee in a press conference after the UPA meeting said that we are in-principle opposed to FDI in insurance and retail, but she never mentioned civil aviation. Among all these so called tough decisions, FDI in civil aviation would be the easiest for the government to make, which they will do sometime in September. It will also incidentally bail out the huge bank debt to the civil aviation sector. The banks are heavily indebted and finally at the end of the day , it is the PSU banks that are most affected. Apart from that Civil aviation sector is not doing too badly either. There is a bit of turnaround, of course oil prices have gone up in the last few weeks. There has been distinct turnaround. If you saw Spicejet for example their numbers were quite remarkable. Jet Airways also wasn’t too bad, though the debt levels there are quite high. So, one would not use this opportunity to sell out of civil aviation. One would hold ones breathe till last week of September. Q: Have you taken a look at the newsflow on Opto Circuits and would you buy that at this point or would you stay away completely? A: In this type of the market bottom fishing is not advisable because stocks that are falling off continue to fall off some more time even if they are blue chips, Bharti for example. There is no need to be a hero. You need to see what the company does internally in terms of its balance sheet and business model. Opto Circuits has been a great disappointment it was heralded as one of the big re-rateable stock even a year ago, but it has just fallen off. I don’t think the internals warrant any change in outlook right now for one to go for bargain hunting.