Every rise is going to meet with selling: PN Vijay

Every rise is going to meet with selling: PN Vijay Portfolio Manger P N Vijay said the markets lost 16% in January and are still have a lot to recover. He feels there may be some tax cuts for both individuals and corporates, this being the last Budget before the election. He expects selling on every rise. Excerpts from CNBC-TV18’s exclusive interview with P N Vijay: Q: Good rear guard action from the lows of the week. Do you think the bottom is in place or is it too hard to say just yet? A: The patient is definitely out of the ICU but is not yet out of the hospital. The market has bounced back 1,500 points in just three trading sessions. The bounce back which started on Wednesday looked a bit unconvincing because of the negative advance-decline ratio and global markets being good. But Thursday and Friday were clearly days when the ratio improved tremendously. Global markets were no great sheikhs. They were quiet middling markets. But India really took off and the leadership was in very strong hands with stocks like BHEL and Reliance Industries going up 18-20%. So, it was a very good going, led by people who should normally be leading. People worry a bit about volumes, but I am not too concerned about volumes, because volumes, which are coming in, are good. They are not the type of derivative volume, which suddenly takes derivative positions to huge levels. So, delivery-based volumes are pretty good, Shares have moved in to stronger hands especially after the Reliance Power debacle. Small investors are gingerly entering the market. The biggies are coming and occupying centerstage, so it is all good news. Will it continue next week? That is very difficult to say. We have lost about 16% in January and still have a lot to recover. Right now, we are closing as well as we could imagine. Q: For the near-term, what looks like the roof of the market? Do you think we can claw back to 19,000 kinds of levels or is there more in the market to take it even beyond that? At this point, do you think rushing to above 20,000 is a bit of a tall stretch after what’s gone on since the last 4-5 weeks? A: Every time stocks rise, people are going to sell. Even HNIs are going to sell because the great profits that they made towards the end of 2007 vanished in January. So, every rise is going to meet with selling. But we could have two very big figures for this market. One is interest rates. We have not formally reduced interest rates, even though there is a fantastic argument going on to reduce rates from even the Finance Minister and Prime Minister. We need to activate consumption demands in the economy. We may also see some tax cuts for both individuals and corporates, this being the last Budget before the election. So, we are having a couple of triggers. If one of them comes through, this market can really get going nicely. Q: The star of the piece this week was Unitech. It had a collapse last week and now has bounced back 30% from the lows. Would you still buy it at Rs 420 or do you think the bounce is done? A: If you are a long-term investor, Unitech at Rs 420 is not bad considering the earnings momentum that the company has built up and the relative underperformance that the whole real estate sector had before this period. Unitech is a very classy player. It is totally at the top end of the market. When interest rates fall, as they are doing, Unitech will be a very big beneficiary because it gets a lot of investment demands for its high-end properties. So, I wouldn’t totally write-off Unitech at this price, even though it has gone up very steeply. Also, don’t forget that ex-bonus. It was trading at Rs 500 for a long time. Q: The one stock which stood out this week on account of news flow and turbulence was JP Associates. After what happened in the middle of the week, do you think the markets have put that bit of controversy on the Taj Expressway behind it? A: The markets helped a lot by asking the management to reaffirm that JP Infratech will remain a 100% subsidiary. It makes sense to put the Taj Expressway as a separate entity because it is huge and an esteemed project. Any group would operate it through SPV but there was apprehensions which were needless. If JP Infratech gave 20% of its shares to private investors, what is wrong with that? That type of unlocking has been going on all the time. As long as JP Infratech remains a subsidiary with above 51% to JP Associates, it is a win-win. Taj Expressway is a great project and a very doable project. It is a simple project across the plains and the amount of real estate that will get unlocked is mindboggling. So, the company has managed to weather the crisis. Q: How much more would you give the oil stocks in their rally? A: I do not think so because the only way they can meet their deficit is through further price hikes and issue of oil bonds. The government has sort of shot the bolt on both. With the run up to the election year, big states going to polls and then the central elections; no government will have the guts to increase oil prices. So, this type of negativism would continue for these companies. They are excellent companies and will shore up through oil bonds, but not through price increases from now on. So, people have bought it because of the news flow. But beyond that, I do not see the rally continuing. Q: What do you make of this extreme volatility in sugar? They move at 10% a day on opposite directions. What is the best way to position oneself in this volatile sector? A: Buy on decline because it is classic case of the present being terrible. This year, the production is excellent and the inventory with the companies is very high. But clear indications are there that going forward from now, the next 12-18 months is going to be a sharp turnaround. So, it is a buy for aggressive investors. People have been holding huge sugar stocks taken at double the present prices. So, every time shares are changing hands and aggressive guys are coming in. But at some stage, these shares are just going to breakout. When the first estimates for ’08-‘09 come and people see how the supply-demand position is changing, then the big money will come in. Right now, the big money is not coming in to sugar. It is only retail money. Q: Do you think the Budget will be an important event for the market or just a non-event like the last couple of years? A: Some Budgets are events, like Chidambaram’s epoch-making Budget exempting dividends from taxes set the bull market on fire. But most of the Budgets are sort of meddling because they change the excise duty. This time it could have a bit more significance because the government has to do something to revive consumption demand. If the economy has to grow at 9%, we have to have investment demands, which is strong. It is higher than 30% of GDP plus consumption demand. Consumption demand is coming down and the government has a very powerful tool, which is the Union Budget. The rest of the monetary tools are really with the RBI. Hopefully, the government will use it with an imaginative tax policy. This could be an event then, though I agree with most of the pundits that are generally writing off the Budget as a media event.