PN Vijay bullish on HCL Tech, TCS, IndusInd & Yes Bank

Portfolio manager PN Vijay is disappointed by the way PSU banks reported earnings, after Punjab National Bank (PNB)’s fourth quarter performance raised hopes of asset quality revival.

He advises investors to stick to the tried and tested private sector banks.  His top pick is IndusInd Bank followed by Yes Bank. In large cap IT, he likes HCL Technologies and TCS. "We are still very uncertain about the capacity of the midcap IT companies," he said. Also read: Market trend choppy; sell Nifty on rallies: Sukhani Below is the verbatim transcript of his interview to CNBC-TV18 Q: You used to track Aptech at one point, did you have a look at the numbers that just flashed by? They have also announced a buy back up to Rs 82 to a share. A: I used to track it, not for the last one year. From what I saw on the ticker the buy back price seems to be attractive. On the other hand the profit figure has a large one off, so one need to get into the details. Last quarter they had a top line problem. So, if the news seems to be good in parts, we have to analyse a bit deeper. However, on a more general basis we are still sticking to the large cap IT. Our holdings continue to be in HCL Technologies and lesser extent in TCS because of the various visa and growth issues in their markets. We are still very uncertain about the capacity of the midcap IT companies. Q: What did you make of the trade deficit? That seem to have worried the market a little bit that despite falling gold prices we did not seem to take a very big step towards addressing the current account deficit (CAD) problem in the month of April. A: Yes that was a shocker and put off people who were settling down to improving macros. Somehow government doesn’t seem to have the gold imports under control. They did increase the import duty, but the sudden crash in gold prices by more than 10 percent has initiated a huge retail buying. China also had very identical data a few days ago. So, I was expecting this in the April data. Having said that probably the consensus view that this is a one off, it is best to go by the sense that if one takes away the pent up demand and the fact that Reserve Bank of India (RBI) is doing some serious work on reducing gold for purchase of gold for speculation investment in a big way in the last few days. I think the negative impact of gold imports may come down to the usual levels going forward. May not be May because we had Akshaya Tritiya but probably from June onwards. Apart from that the trade data was not too bad. Non gold for the first time after three years or so, exports were more than imports including oil imports. So on the trade front things are not as bad as optically they look. Of course we had a good consumer index inflation data. On the whole one has to worry a little bit about the CAD on rupee-dollar because the dollar is also marching ahead and there is negativity about India's CAD. Rupee is still a question mark. Rupee has been strangely hovering around present levels for some time without any direction. So that is something to worry about. On the other hand very cheerful news from the bond markets, bond markets compared to six months ago have improved tremendously. The 10 year bond is around 7.55-7.6, which is an amazing rate for India. This means inflation perceptions have really cracked in the economy. The macros are very mixed actually though yesterday CAD was a great shocker. Q: What would you buy from the midcap bunch after this recent correction we have seen because there was a lot of talk about midcaps now presenting opportunities? In the last four-six days anything you saw in terms of earnings that looks like a good midcap buy? A: Well the PSU banks have been a bit of a disappointment actually. I was rather enthused with the way Punjab National Bank kicked off. However, what we have had in the last two days have been really shocking, Bank of Baroda, Bank of India and Dena Bank which means that the asset quality of PSU banks is not improving at all. So, one would take away that portion of the midcap banks that leaves the private sector banks. People are getting overweight though yesterdays crash has taken off some of the cream. I would still stick to the tried and tested private sector banks not because their growth is fantastic, not because their net interest margins (NIMs) are great but because their asset quality is very high. So, in the pecking order I guess IndusInd Bank continues to be about the best, followed by Yes Bank where the profitability is a bit less. It is a small menu card out there but the way the PSU banks have performed I am not all enthusiastic about bottom fishing in those banks.