Sensex could touch 12000 in a month: PN Vijay

[vengabeats]

Investment advisor, PN Vijay says that the markets could go a long distance up. Taking all the global and domestic factors into consideration and speaking to HNIs, he feels that the Sensex could be touching the 12000 mark in a month's time.

Excerpts from CNBC-TV18's exclusive interview with PN Vijay

Q: 11,300 is here, how much upside do you see from here?

A: We could go a long distance up from here. There is some excellent data from the US. We had the news that the UN had brokered peace and the Israelis are back in their barracks.

Closer home in India, the HNIs are back with a bang. So we have a heady cocktail here and if all this goes on in the no news period, we could well be touching 12,000 in a month's time.

Q: Do you think momentum is coming back and the market could surprise us once again, because there is no consensus towards the market being unable to go to 12,000 levels?

A: I believe so. Over the last few days I have been spending a lot of time with HNIs, who are basically risk takers. They know what losing money means because they are all in property or gold and so on. They have all got stuck; they could not rotate their stocks because they have gone into midcaps and some of the other stocks which have fallen so much. Now rotation is coming back; they want to buy and sell. There is a wave of optimism again; it maybe due to the rains or the festival season, but I have seen tremendous retail activity developing in the last one week.

Q: Could you come in on the sort of action that we have seen in the midcaps in the past week, even on Monday?

A: What I have seen in this market in the whole of 2006 was that the largecaps have performed quite well right through, but normally the market is not like that. In a bull market, at some time the undervalued stocks, the midcap stocks, really freak out. This time also they did start freaking out, and then we had this big crash in May and June, so they fell with a thud.

What is interesting is that the retail investors have not lost hope. I was very worried about them walking out of the market. But today I see them buying retail stocks; they are buying real estate stocks, and are also buying into metal stocks. These are all risky stocks that they are buying into which means that the sentiments have changed very dramatically.

Q: Do you sense that liquidity or institutional liquidity might pick up as well, because we have been hearing stories about how fresh money has been raised for India . Are things stabilising globally?

A: Possibly, but let's not forget that we had some very strong inflows in the first 3-4 months anyway. In the US there was a real fear of high interest rates, and when that happens, emerging markets first get hit because the risk return syndrome in emerging markets is very different. Now that some sort of a confidence has come back among fund managers in the US and to some extent in Japan, their propensity to take risk also seems to be going up. As the PM said from the Red Fort yesterday, there are not too many big economies in the world which are routinely giving an 8% growth rate, so I won't be surprised if some of the smart dollars come back to India the next 3 months.

Q: What do you with sugar right now, internationally prices have cooled down. Here, stocks have bounced back and then fallen again. Would you sell into this weakness and stay away from this segment or buy value here?

A: Unfortunately in this commodity my sense is that the best days are over. Globally, production is picking up and sugar does have an inverse correlation to crude prices because of the ethanol connectivity. While domestic sugar industries are very competitive and they will be able to export, I think the fantastic days that the Indian sugar mills had, that 3-4 year run, is over. I would probably sell into strength here and move into a commodity like plantations where the outlook seems to be a lot more promising.

Q: Do you track i-flex closely, what do you make of that deal with Mantas, the fact that there is an open offer which will come in likely at 1475? How do you see the near term direction for the stock?

A: It's an absolute blue chip company. Infact we should start talking about it in the same way as we do Infosys and TCS and Satyam. It's becoming better and better and it is an Oracle company. Clearly they had wanted to do this acquisition for sometime, being a big one- USD 122 million- which Oracle is funding it through equity, so they are okay.

Of course when we talk of i-flex we should remember that there is a certain lumpiness in the earnings; its still a product company, so lot of it comes in the third and fourth quarters. But I would still rank it among the best in the midcap IT's going around in the Indian markets.
Q: From the front-runners, the heavy weights, which one do you expect to prop up this market most as and when it makes its move forward?

A: It could be a stock like Maruti for example, which has really not caught on so far and is beginning to pick up. State Bank of India would continue to rise; it is still far away from its 52-week highs. BHEL has to still come out with precise details of the bonus cum split and that's a heavy weight. So these are very strong stocks that people were a little doubting about as far as the fundamental story goes, but now are back on track. Valuation wise also they are pretty okay. These are the type of stocks, which may lead from the front going forward.

Q: How would you play shipping now, Mercator Lines, Varun and even GE Shipping?

A: This is a very difficult industry because it is subject to so many global forces. There seems to be some revival of buying, especially in shares like Mercator. But given the global scenario and the fact that probably 2007-08 onwards, the global economy is poised for a soft landing, which is always bad for shipping. I would be very stock specific in this and not buy the industry as such.

Q: What would you back from here if you were to look at the midcap space and do you think the real estate pack which is leading it right now can get back to the highs from which they fell?

A: I don't think that the real estate pack will go back to those levels because there is a certain softness in the real estate market. If you look stock by stock at the valuations factor in a huge amount of speculative interest, all of them are trading above 30-35 PE multiples. So I think the investors should just let the profits run for a while and if there is trouble then dump them. I would still go for midcap IT and midcap manufacturing, and the capital goods space. We have shares like Bharat Earth Movers and Bharat Electronics, Voltas, Crompton Greaves, which are all delivering good numbers, good future outlook. They had all got beaten down mercilessly by 40-50%. So these are very good stocks for retail investors to get into.

Q: Will you put much into the run that HPCL and BPCL have seen?

A: No, I think that this is some sort of a short-term rally. I don't see anyway for these companies to get back to their past glory. The political climate is definitely not favourable for the government to compensate them. Okay, they are having a rally because people are seeing some softness in crude prices. But even if crude goes to 70 or 65, these people will still be bleeding. So when there are so many good opportunities available, why buy these risky stocks.

Q: What do you do with some of the infrastructure plays like JP Associates, which have also got knocked very badly in this midcap fall?

A: Infrastructure would start looking up again because their order books are very good. They had some margin pressures in the first quarter but they are coming out of them and they will continue to do well. One thing I worry about a little in this space is the pumping and dumping that happens sometimes. As this rally takes off there would be operators who would be pumping up some smaller stocks up, and then dumping them. This is one space where there are not that many quality names, so retail investors should be very careful in what type of buying they do.

Q: What about the real estate plays which are essentially land bank holders and not developers. One can understand Mahindra Gesco, Unitech bouncing but what about the Bombay Dyeing's, Bata's, Hindustan Motors of the world, which owned land and also had corrected quite sharply?

A: I feel that for those where the fundamentals are not based on real estate, one should sell on strength. There is a sea of change happening in the real estate market today. The SEZs, which the government announced, have brought about a total change in the whole industry. These SEZs are very area specific. So unless one is in a pure real estate play, one will not be able to take advantage of that. There may be an odd mill that one can develop, but as it becomes a real industry and real estate funds start coming in the next few months, one would see that pure real estate plays would command much better valuation. So if one is getting a nice price on Bombay Dyeing, I would say sell it and go into a pure real estate play.

Disclosures:

In our portfolio we have I-flex, Mahindra Gesco and some of the other midcap stocks that we talked about. We also have Maruti.


Source : CNBC