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Portfolio Manager PN Vijay feels that the markets are about to ‘take-off.’ There has been a lot of action from the small caps and midcaps over the past forty days, he said. But now, it’s the time for largecaps to make a move; the big money is waiting for Fed news, Vijay said. He sees the markets moving up smartly in the next ten days.

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

Q: Do you think the Fed meeting will finally take us above 20,000 or do you think it will remain a midcap market till the end of this year?

A: My sense is that this market is about to take off. There is a lot of activity among midcap and smallcap stocks, which is not getting reflected in the headline indices but that is just a temporary phenomenon. We have had this midcap run for about 40 days now.

Now, it is time for the largecaps to come in. The big money is waiting for the Fed meet to get out of the way. Even if it is 25 basis point rise, I expect this market to move very smartly after the next 10 days.

Q: Do you think it is going to be an either/ or situation that for the largecaps to move or build momentum, the midcaps would have to ease off a little bit?

A: A little bit, I would go wiht emphasis on little bit because there is only that much of money that comes in. I would say that going forward into December, the largecaps would definitely do well, the midcaps may become a bit more selective. We have been seeing a lot of speculative buying in many sectors, not really backed by fundamentals. That might taper off a bit.

I don’t think the midcap rally that we are seeing is anywhere near its end. But it would taper off in my view and the largecaps would sort of start taking off from here.

Q: Eicher Motors got slammed yesterday after the news came in, ofcoure you sit on the board of the company. Why do you think the market has been so circumspect after the news came in?

A: In Eicher Motors to some extent the market misread the deal. To my mind, as an investment banker, apart from being a board member, the deal is very simple. Volvo paid USD 350 million for a 45% stake, which means the equity value of Eicher Motors stake in the joint venture, which they will be consolidating, is about USD 418 million, which is about Rs1,650 crore or so. That works out to a per share Eicher Motors value of Rs 600 on a Rs 28 crore capital and if you put their oil and field business and some other ancillary business valued at about Rs 75, the true value of Eicher Motors share to my mind is that it should be Rs 675 because that is the way market value companies. If you see Aban or Reliance Capital or Suzlon, we are really paying the share price for the value of the subsidiary included, to the extent of the equity value of that subsidiary.

This point, punters didn’t sort of understand among all the numbers and I am sure that the share will eventually would go to what it is worth which in my view is around Rs 675.

Q: Yesterday was the first time, the non F&O trio from sugar and the rest of the space was moving. How would you position yourself on those stocks now?

A: We are seriously looking at getting back into sugar. The reason being, one is that there has been a wave of government relaxations in terms of subsidies, the Allahabad High Court ruling on the SNP, then the interest waiver etc. and that is keeping investors’ interest up. Apart from that one understands from sugar barons that ’07-08 will be quite bad because they are carrying a huge surplus forward into this season. But ’08-09, they expect the sowing to be substantially less, given also the high paddy and wheat procurement prices that they are getting from private traders.

So, we may see a sea change in the demand-supply into ’08-09. Unlike textiles, where many of the companies have run up a lot, in sugar if you see when compared to one and half years ago, shares are trading at about 60% of value. The more aggressive investors could think of this as a serious sector now.

Q: From the entire textile space and even some of the retail plays, which one would you look at carefully now or would be interested in buying?

A: We are looking at S Kumars Nationwide quite seriously. The reason is not only because it is a textile play but there is a major corporate restructuring, which is on the card and they have the Reid and Taylor brand. There will be a lot of unlocking of value in S Kumars. Even though, I am neutral on the sector as a whole, S Kumars could lead to some big gains due to unlocking play.

Q: Would you buy companies like Abhishek Industries, Alok Industries and even Arvind Mills?

A: I am not so sure because they do have problems of margins and many of them have created huge capacities that were based on export model, terry towels, denims etc. The strong rupee is hitting them very hard because unlike the software industry, which works on 35-40% margin, this industry works on a 10-15% margin. So, the rupee appreciation hits them very hard. Fundamentally, I don’t think this sector is an outperformer, though it is a very asset rich sector, people may be playing some asset plays there.

Q: Anything that you have been looking in the pharmaceutical space?

A: I have always held the view that the best spark in the Indian pharmaceutical sector is the contract manufacturing because it is a breaking type of thing, it is not dependent on penetration of US market, it is not dependent on formulation pricing in India etc. I go for Divis Lab, that has run up a lot. It has been a 10 bagger in the last five years. But even today stock like Divis Lab will give you extremely good return because of the strength of the basic contract manufacturing model.

Q: What is your take on GAIL at Rs 510, it has had a good run? Would you buy it here?

A: I missed out a little bit on the action in GAIL.. It is fast becoming one of India’s most interesting oil and gas plays. It has built huge capacities for transportation in what is definitely India’s biggest energy source that is gas in the years to come at least. They have got a very predominant position and the share has run up a lot. But the way gas pricing has been gradually freed by the government, I feel that GAIL still has a very long way to go. It is one of the best oil and gas picks today in the country.

Q: If you had to pick one or two stocks in the real estate space for relative gains, what would you pick now?

A: I would still go for some of the older entities like Unitech. Now since we are seeing a sectoral buying, even the cats and dogs are moving up and you saw the IPO pricing brigade at such high P/E ratios. So, the entire sector is in the limelight. But for the longer term investor, a higher and superior brand with a strong margins and excellent land banks like Unitech, even at this level would be a sure shot bet in my view.

Disclosures:
It is safe to assume that my clients & I have an interest in the stocks/sectors discussed.

Source: Moneycontrol.com