Cautious on RCom; bullish on ICICI Bank, IndusInd: PN Vijay

In an interview to CNBC-TV18 portfolio manager PN Vijay shared outlook and trading strategies for stocks across various sector.

Commenting on Reliance Communication ahead of the impending Globalcom deal, PN Vijay says, "I am still very skeptical about RComm, its business model, profitability, regulatory issues etc. So, I will not rush in on that." On banking stocks he said, "I would pitch for ICICI Bank. Even Axis Bank is a good call but HDFC Bank is over priced. Whereas as a long-term investor, I would prefer IndusInd Bank over Yes Bank." Despite the recent fall in gold prices, Vijay is not looking to buy finance companies although Titan Industries could be a hold. Commenting on the developments of cabinet committee on investment (CCI) clearing 13 power projects and 25 oil blocks and the proposal for coal pool pricing not going through, Vijay believes that faster clearances and faster implementation of stalled projects would be a big relief for power companies than an immediate resolution of coal pricing pool issue. Below is the verbatim transcript of his interview on CNBC-TV18 Q: Some of these power and coal companies will likely be in focus with all the developments on coal price pooling last evening. How have you read that move for the two key protagonists- National Thermal Power Corporation (NTPC) and Coal India? A: NTPC and Coal India have entered into some sort of an agreement last month; the only issue is the pricing. Now if the coal price pooling becomes a fact of life then that will be a big gain for the power companies. However I don't see that happening so fast because there are other issues like the price of local coal, the cost of production, the cost of imported coal, where the imported coal is coming from etc. Yesterday the cabinet and the Cabinet Committee on Investments (CCI) cleared up a lot of projects at breakneck speed. They cleared up a lot of them in the energy sector. So, to that extent it would be a great relief because the CCI is going project by project to see how they can be cleared of environment clearances etc. The big relief for power companies would come from faster clearances and faster implementation of stalled projects than an immediate resolution of the coal pricing pooling issue. Q: Reliance Communications (RComm) was the biggest gainer yesterday; it has doubled in the last one month. Would you put any fresh money into it ahead of the impending Globalcom deal or would you be cautious now? A: It has had a huge run up but it is still trading very close to the bottom of its five year range. Recent events have been very positive for RComm; there was a big announcement of the cooperation between the two brothers, and then we have this deal coming up. So the event flow has been very positive. Secondly, in a very vicarious way they have not been so embroiled in the 2G controversy as Bharti Airtel and Idea Cellular have been. However, just because we are not selling something doesn’t mean we have to buy it. I am still very skeptical about RComm; its business model, its profitability, its regulatory issues and so on. I will not rush in on that but right now the stock is having a huge run up, so you may as well wait till about Rs 100 and then think seriously of exiting. Also read: FIIs ebbing away from India; see mild correction now says Bhat Q: After the big crash in gold has the time come to relook at some of the gold finance companies, or Titan Industries or some of the smaller South India based banks now? A: I would differentiate between the gold financing companies and Titan. The gold financing companies would not come into my buy list for some more time because the confidence of the market in them has been totally shattered. Experience tells us that confidence in midcaps when it gets shattered; it takes a long time for it to come back again. We have seen the real estate and the sugar sector; people wait for an extended rally may be even for a year or so before big money gets into the market. I would not use the crash to buy into these stocks like Manappuram Finance, Muthoot Finance because their business model is still very risky. However Titan different because it is a fast-moving consumer goods (FMCG) company and there is a derived impact. So, Titan at some point would become a buy. The entire FMCG sector is passing through some sort of a question mark on its margins and its volumes etc and good news on monsoon may set that right but today Titan is at best a hold. Therefore gold finance companies are clearly a no and Titan is right now a hold. Q: Starting today we have a lot of these private sector banks announcing their numbers, HDFC Bank and later there is ICICI Bank as well. After what you have seen from the smaller private guys what would you bet on now within the entire private sector banking space? A: We had some very stellar performance from both Indus Ind and Yes Bank. They are relatively newer banks with very little track record. Among the bigger ones I pitch for ICICI Bank because it is still in the final stages of reinventing itself. It had a very disastrous time three-four years ago but it has come out very nicely and an investor is always looking for that upgrade element. HDFC Bank is clearly overpriced; it is there in peoples’ portfolio, more so in those of Foreign Institutional Investors (FIIs) and mutual funds rather than retail investors. Axis Bank is a good call but since you have asked me one of the three, I would say buying into the results; the best call would be ICICI bank. Q: What would you buy between a Yes Bank and an Indus Ind Bank? A: As a long-term investor I would prefer Indus Ind Bank for two reasons. Indus Ind Bank is a broader bank. Yes Bank operates very much in the pure metropolitan space. If you look very closely at the numbers, the net interest margins of Yes Bank are not that great. Infact many public sector banks have better net interest margin than Yes Bank. I would say Yes Bank is a bit hyped up but there is lot of fancy pricing in that bank. I would say between the two, I would pitch for Indus Ind Bank.