Dont see huge upsides unless FII flows rise: PN Vijay
Published on Friday, September 12th, 2008 at 5:59 PMAuthor: admin (5507 Articles)
Portfolio Manager PN Vijay said the movement of the rupee vis-à-vis the dollar has got everybody shaken. “No body really expected the rupee to come off in the last one month. For smart money to come back, some amount of steadiness in the rupee vis-à-vis the dollar is absolutely essential, even if there is good news on the IIP and inflation front.”
He doesn’t see huge upside from current levels unless there is an increase in FII flows. “However, the downside is very limited.”
Excerpts from CNBC-TV18’s exclusive interview with PN Vijay:
Q: It has been a disappointing week. Do you think that we are now on an extreme back foot starting Monday?
A: We started the week with good news of the NSG waiver among others. This has petered off. We had a decent July IIP number. Capital goods went up 22% while consumer durables held up at 7.3%. At present, there is a negative feeling in the market that we are seeing a surge in selling. Liquidity levels in the systems are quite high, however sentiment is poor. Nobody wants to put the first dollar in. Apart from the fact that we over performed recently, the movement of the rupee vis-à-vis the dollar has shaken everybody. Nobody really expected the rupee to come off in the last one month. Some amount of steadiness in the rupee vis-à-vis the dollar is absolutely essential for smart money to come back, even if there is good news with respect to IIP and inflation.
Q: What is going on with Reliance Industries? It has been down 7% for the week and about 15-17% down in the last one month. Why do you think is this stock crumbling?
A: There are two reasons for the fall in the Reliance stock. With oil falling, refining margins in Singapore has also fallen significantly. Although RIL has been the darling of the masses for the last 30 years, it is treated as any other refining company. That is the fundamental reason for the fall. The stock was jogging along with the index, and when the announcement of the oil fields being subsidised came in, investors were put-off. However, we don’t know the valuations and percentage of subsidy. The Ambanis have undertaken a lot of corporate innovations to increase their holding in companies. They are not new to these games. Thus, investors believe that such a big company should be slightly more transparent with respect to their assets, etc. So, RIL is getting hit on grounds of corporate governance as well.
Q: What did you make of the big sell-off in Infosys? Do you think the market should be more concerned now about what the technology sector might throw up when it announces its earnings?
A: I don’t think so. We had a brokerage raising concerns about the eurozone revenues of Infosys. The strong dollar has been a great benefit to IT companies, and that will more than overshadow any sterling or euro weakness. Big companies are able to get clients at fairly decent prices. I don’t expect any great negative surprises from big IT companies at Rs 45.50 per dollar. We would be cautious buyers in Infosys at around Rs 1,600 levels.
Q: Will the market continue to ignore domestic positive news and focus on FII outflows and the turmoil in global equity markets?
A: The Indian market is dependent on FII flows. It is going to take about 3-4 years for India to have a strong domestic institutional investor base, which can counter-balance that. So, we will have to live with it. In January, there were three major negatives ‑ overvaluation of stocks, high commodity prices, and negativism towards equities globally ‑ working against us.
Fortunately, the first two seem to have come off. Valuations are definitely more attractive and commodity prices are no longer a worry. Domestically, we have set the house in order. But we need some strong inflows to get investor confidence back.
Q: Could the markets drift much lower or can we scale back and close up this month with gains as many had expected earlier?
A: I thought we will hold on to the rally this week especially after the NSG waiver and oil cooled off. We were proved wrong. I still feel the mid-July low that we had hit was the bottom for this market. I don’t think we are ever going to see 3,700 again in our living memory. How far could it go up? It depends on flows because India is getting its act together. The 22% increase in capital goods is fantastic by any standard. One can sense that investment is really being pumped into the economy by the government everyday. Unless we get some genuine FII flows, I don’t think there will be a great upside, but the downside is very limited.
Source : MoneyControl
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