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Where does Anand Tandon of Gryffon Investment Advisors see markets around 2007-end and 2008-opening?

Speaking to CNBC-TV18, he says the recent pattern of sharp corrections followed by sharp openings show that in the next few weeks, markets may go up because the trading range is well established, and so for the next few weeks markets should stay reasonably positive.

However, markets may not be looking at a huge upside from here, but a 1,000-2,000 points range is quite possible, he said.

Excerpts from CNBC-TV18's exclusive interview with Anand Tandon:

Q: What’s your sense after looking at all the global cues, how do you see 2007 closing and the first bit of 2008?

A: The last couple of days have been down and given the experience we have had in the recent bull run, sharp corrections are followed by sharp upticks. So I wouldn’t be surprised if in the next few days we see the market going up a bit because the trading range is reasonably well established now. I don’t think that the market is going to make new moves one way or the other in the next week or so. So, for the moment the market mood will be reasonably positive.

Q: What is the range for you? At 19,000 are we at the lower end or somewhere in the middle? Where are we?

A: For the near-term, I would think that we are closer to the near end than to the upper end. That doesn’t mean necessarily that we are looking at a huge upside from here. But even 1,000-2,000 move is quite possible, or a range of that nature is quite possible. So, I would think that from hereon possibly trading up for the next few weeks.

Q: How would you position yourself on IFCI? The deal almost done looks like there is only one contender. What would be the right way to approach it at Rs 100?

A: If one were to look at the numbers, one would never have been able to justify a price, which is much higher than what it is at currently. But if one were to look at the circumstances in which the deal is done; I would think that one would expect to see higher prices from hereon. The investor base that is looking to buy into the company would have a few plans to make sure that they add value to the rest of the shareholders as well as to themselves.

Q: To your mind how big a deal is politics going to be in 2008?

A: It is going to be reasonably big. But I think we will have both US as well as India getting into issues on politics. I still maintain that while we have been ignoring what’s been going in our neighbourhood that can be a big problem for us on the defense side going forward. We have already begun to see some issues in terms of terrorist threats resurfacing especially in Punjab.

But for the moment what matters to the market is not politics or anything. That’s not what matters to the market that we are getting into January where expectation of allocations going up is again building up and therefore in the near-term flows of money coming into the market will dominate all other issues.

I think on a fundamental basis, one has to still worry whether or not the margin pressures will start to build-up given that commodity prices have started to harden, and whether given that most of the companies that have made significant profits in the current year have been commodity companies, and whether that trend can continue or that will adversely affect some of the user industries.

So, in that overall context it’s difficult to take a longer-term call and say that if the markets headed this way or that. One has to necessarily go with the momentum and momentum right now would be positive, is my bet.

Q: What do you do in the aviation space now leading up to the Deccan-Kingfisher eventual merger that is being contemplated? At Rs 320 how would you read Deccan Aviation?

A: The business itself is now beginning to perhaps show some signs of life because the consolidation will eventually lead to the industry trying to make sure that their profitability improves by raising prices. So, to that extent perhaps we could argue that eventually the companies will start to make money.

If one looks at it, however the fact is that on a sustained basis aviation has not been a value creator. So, to argue that one can make a lot of money on this industry will require a lot more on the structural reforms in a way that allows more capacity to be built up on airports and so on, before they are able to cut their cost down to meaningful levels.

So, on a momentum basis one might want to get into the stock because nowadays every time a company announces a fund raising programme, stocks tend to rally. And therefore to that extent this company also would presumably move in the same way. But on a fundamental basis, I find it difficult to argue that it will be a great value creator for shareholders.

Q: People have been calling for a contrarian buy on pharma for a while now. But it is not giving though those kind of sustainable moves. How confident are you that one of those moves will materialise this time?

A: I think it is not going to be a momentum sector. But it is now a sector where earnings growth is beginning to resume especially in the large companies. I think the visibility of earnings for example for Ranbaxy has improved tremendously for the next few years barring next year. The expectation is there would be another deal announced, which will take care of significant earnings growth for the next year as well. One is looking at robust earnings for the near three years for a company like Ranbaxy, which has to do well for the sector.

If one has to look at the prices then companies like Glenmark, Ranbaxy even Glaxo, which had a fall recently; have actually done about 15% for the month to date. So actually the sector has shown quite a bit of upside in the near-term.

There is now a rotation in portfolio, which is including pharma, which to my mind also reflects somewhat more defensive nature of fresh investment perhaps.

Q: Any thoughts on an FMCG play like Jyothy Laboratories?

A: I haven’t looked at the company. But the sector is due for another bounce from here. Obviously ITC has been doing reasonably well and is expected to continue to do well. Even somewhat sedate companies like GSK Consumer have done reasonably well in the past.

But as I mentioned earlier that if one gets use to the fact that the frontliners are not going to be having a 30% growth then 18-19% growth rate at a similar P/E starts to make sense.

So, to my mind the fact that pharma and FMCG are beginning to show strength means that the market is beginning to factor-in a perhaps slightly slower earnings and topline growth than what we have witnessed in the past few years.

Q: One word on the metal space and how you would approach it? Stocks like SAIL, Ispat, and Sterlite have been big leaders. Would you buy them?

A: As I mentioned a while back, commodities have been doing quite well, and at this stage I would imagine aluminium is slightly better off. But the expectation is that for steel because the raw material prices are going up, the end product prices will also go up. That is a strange argument to make always but right now one is not averse to listening to strange arguments.

So, the assumption that the end product prices will go up would mean that the earnings for many of these companies are likely to expand. Obviously for many of the steel companies, the largesse of the government in terms of giving them coal and ore mines has helped quite significantly.

So, overall the sector seems to be in fine fettle. Valuations are somewhat on the higher side in terms of historic valuations, but still much lower than the rest of the market which is as it should be given the nature of the business. But what is to argue between an eight times EV/EBITDA, or six or ten times.

Q: Where do you stand on the buy sugar argument?

A: Very much on the sidelines. I see no reason why one should buy more sugar because of the sugar. And if one has to buy it for alcohol, there are breweries to buy.

But that aside, it is difficult to predict what the government will do in terms of its policies. On its own, there is not much argument to be made for sugar even now.

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

Source: Moneycontrol.com