See lot of speculative upside in ADAG stocks: PN Vijay

In an interview to CNBC-TV18, portfolio manager PN Vijay spoke about various stocks, sector and all that is making news in the market right now.

Also read: Stocks in news: Mangalore Chem, Cipla, Merck, NTPC

Below is the verbatim transcript of interview to CNBC-TV18

Q: How did you read the Reliance Communications’ deal yesterday? Do you think it has been priced in or do you think there is more upside?

A: This deal is tremendously positive for the Anil Ambani group of companies on two counts. 1) They have a credibility issue in the market and 2) they have a very high debt -- surely in Reliance Communications, unacceptable levels of debt. To the extent, the brothers are actually starting to exploit the synergies. It is hugely positive for the Anil Ambani group.

Telecom works on synergies. One can visualise a major giant emerging cutting across CDMA, 2G, 3G and 4G with Anil Ambani group’s Reliance Communications having a significant share of the pie. So, I don’t think the market has priced in this, if one looks at the slaughter that has happened to Reliance Communications, Reliance Capital and Reliance Infra. They have been very big underperformers. If this is a precursor for a larger involvement of Mukesh Ambani in the affairs of Anil Ambani, I think there could be lot more of speculative upside left in these.

Q: The mood on Infosys has picked up quite a bit in the last four trading sessions and it is trying to get back to that Rs 3,000 level. What is your sense of how this stock would move from here and how earnings would pan out?

A: Infosys’ next move will obviously depend on the earnings. The last earnings was very well received by the market. We had a big rally in the stock and Infosys in particular and IT sector in general in the market in the last three months because of fairly certain earnings growth as compared to other sectors.

Infosys hasn't reached its top at all yet. If TCS and Infosys are compared, TCS is way ahead in terms of returns to shareholders last two years. So, the next trigger of course would be the last quarter earnings of Infosys. If they pan out to be reasonably good and inline with the good ones of Q3, one can see Infosys really going up another 10 percent in the next three-four months. 

Q: Would you buy Hero MotoCorp because the valuations look very attractive and as we all know it is really difficult to dethrone the market leader?

A: I think that will be a risk buy. The sector is not doing too well as Udayan Mukherjee was explaining. Also, Hero MotoCorp being the leader has a big to remain the leader. Honda Motor Corporation is making very serious in roads right at their belly with a very good brand name and very good technology.

So, I bet I see a rather bumpy and even ride for Hero MotoCorp. I would continue, as Udayan Mukherjee was also saying, to place my bets on Maruti, which I think will ride out because Maruti is a consumption-demand story, much faster and Mahindra where good monsoons may give a sharp uptake to tractor output.

So, these are relatively safer havens. Where a sector is doing badly, one shouldn’t be a hero. When a sector is doing extremely well, one can try to be a hero but it is better to play safe.

Q: What’s your top pick in the pharma space now?

A: Everything looks interesting in Pharma but the midcaps have fallen a lot. It has sort of been lost in the market because all midcaps have fallen. I think better bargains are going to be available in the midcaps as compared to Sun Pharma or Dr Reddy’s.

My own favourites for a long time in this have been Glenmark and Ipca Labs. They have a very good business model, they are research driven, they are gaining market share, and their products are getting approval. So, I think one won’t lose any money and probably make market outperformance by investing into Glenmark and Ipca Labs in the ongoing rally in midcaps that we are seeing.

Q: Though it keeps getting deferred - there is some hope that tomorrow again there could be a cabinet meeting which takes up the long pending issues on the sugar sector. Would you buy anything here?

A: One would like to see the actual announcement. Reasons are two folds. It is very political. It is very Uttar Pradesh (UP) and Karnataka driven. So, government has to think of the politics of it. Second is, people use the word decontrol rather loosely. Decontrol what? Decontrol levy sugar? Anyway that’s a very small percentage. The run up we had, has already digested that.

 Decontrol licensing totally or decontrol registered cane areas, which mean that one can porch into other people’s cane by offering better prices. There are many aspects of government control on sugar. So, one would need to see how far the government will bite the bullet on the Rangarajan committee report. If it does the whole way including decontrol of acreage, levy free and licensing - that would be a huge positive because the sector is unlike urea and other agro commodities.

India has some very strong core competencies in sugar. So, one can imagine huge foreign investment coming into. All these midcaps we keep flaunting about may all be targets of takeovers. So, that could be big news but given the track record of this government in taking two steps forward and one step back on anything is politically oriented. One would actually like to see the decision.