How to play ONGC, SAIL, BHEL FPOs? PN Vijay answers

PN Vijay, Portfolio Manager in an interview with CNBC-TV18 gave his readings and outlook for the market. He also shared his views and trading ideas for stocks like BHEL, L&T, ICICI Bank, Mahindra Satyam and SBI.

Citing his outlook for BHEL in the wake of the quarterly numbers he said, "The numbers were fairly satisfactory. The positive takeaway was the firm order book. The company now has about four years turnover in orders. I would put BHEL in the positive. At this beaten down level it is surely a long term bet for building into portfolios."

Talking on the issue of FPO pricing for companies like SAIL, ONGC and BHEL he said, "The criteria for SAIL or BHEL which have huge volumes both in the cash and derivatives market, the FPO decision should be based on pricing. If you get decent discount to the price, go ahead and buy it."

"FPOs of largely liquid companies like SAIL, BHEL, and ONGC should be treated on merits. If you get 15-20% discount on the last closing price then go ahead, you will make money," he added.

Below is the verbatim transcript of his interview with Sonia Shenoy and Mitali Mukherjee of CNBC-TV18. Also watch the accompanying video.

Q: How did you read BHEL's numbers? How much of an overhang do you think this follow on issue is going to be for the stock?

A: The numbers were fairly satisfactory. One was a bit apprehensive about L&T and BHEL. L&T came with stellar numbers. BHEL was not too bad.  The positive takeaways were the firm order book.

The company now has about four years turnover in orders. Though about 70% is from the power sector where closure issues are involved. But even then four years is a very high figure for BHEL.

Secondly, the EBITDA margins have held up. One was afraid of the material cost because they have done some extremely aggressive sourcing from China through e-auctions etc because of which the material cost have been flat. So that is a good news.

There has been some change in accounting standards to confirm to global standards which are due from next year. That extent optically the results are looking slightly better than they are.

But, if you have two boxes the positives and the negatives boxes I would put BHEL in the positive. At this beaten down level it is surely a long term bet for building into portfolios.

Q: What is happening with the banking space? Yesterday there was acute pressure yet again in the banking index- SBI slipped below Rs 2,250 and now there are some cracks opening up even in private banks like ICICI etc are you anticipating more pressure?

A: Not based on fundamentals, if you see yesterdays trades for example ICICI lost hugely purely because of shorting by operators. The open interest just zoomed up followed by a fall in price and same thing happened in BHEL also.

What we saw yesterday and probably the previous week was basically short selling by operators. It can't be given to fundamentals because the fundamentals of ICICI Bank as shown by the Q4 were excellent. 45% increase in bottom-line do not justify low for that stock.

Apart from the PSU banks there are issues on credit quality. I am quite relaxed about the private banks because they manage their credit quality very well. ICICI has also done a good job last three-four quarters.

Right now it is a mood of pervasive pessimism that is driving embolding for short sellers to hit all these stocks. But I would not be surprised if there is a very sharp rally up when the shorts gets closed. On the whole I am not too negative about private banks really.

Q: So overall for the market after seeing the correction and that slip below 5,400, do you think that we are heavily oversold and there is a case being built for a pullback or do you think there is more to go on the downside?

A: This question has two parts to it; one, are we heavily oversold? yes most certainly. Every indicator indicates that if the Nifty discount is to be taken from being at a premium for many months and last few days we had a sharp discount to the Nifty spot. This means that shorts are high, stock after stock has been shorted, State Bank have been shorted big time.

But on the other hand what short sellers normally do is when the environment is pervasively negative, they are very bold, they don't cover their shorts. So, there has to be something happening in the global environment, some good data point from the US which will make the short sellers cover. That should probably happen before the Nifty touches 5,300. I don't see the Nifty being taken down by shorts below that level.

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Q: Is it becoming a bit of a vicious cycle though where the much needed cool off in crude is leading to collateral damage on everything else so it is not really working in our favour when we do see a dip in prices?

A: As the experts say we have to ask why is crude falling? If crude is falling because the speculators are out of the market which happened when the Brent came down from USD 123 down to USD 112, that is good for the market.

But, if the crude is falling because of fear of global economy slowing down accompanied by other commodity fall like copper etc, means that people are afraid the Chinese growth engine would storm up, the European growth engine would slowdown. This means crude falling only is only an indicator of an economic slowdown which is what is happening now.

People are really afraid that the economic recovery which we have seen in the last one year is slowing down and so along with crude equities is also falling down. But in the long term again you have to look at India; India is a very funny and special model.

Any fall in crude is good for India per se because we are  a domestically driven economy and comparing it with Thailand, Korea or China is totally wrong. This is because 98% of India