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Rajesh Jain, Director & CEO, Pranav Securities told CNBC-TV18 that he is positive on the PSU space. Overall, he feels that the entire PSU power and power capital goods space will continue to give a good performance. The leader in terms of buying for 2008 would the oil sector followed by the fertilizer space, he added.

Excerpts from CNBC-TV’s exclusive interview with Rajesh Jain:

Q: The entire power space- Do you like stories like Power Grid and Power Trading?

A: Going forward into 2008, it becomes very critical at the 20,000 mark to be able to pick up a set of stocks which have absolutely unflinching fundamental value even at the 20,000 mark and going forward, one can see sustained uptick in all of them and to that extent, I am not answering your question in the order you have asked.

The theme that we have liked over the last 6 months is the PSU space, for the simple reason that the markets have chugged along but because of lack of fancy; because of the Left factor in the UPA government at the Center. The entire PSU space barring an odd BHEL, NTPC has been given the complete thumbs down signal, it is not being fancied and more or less people have written off the disinvestment as a driver for the PSU stocks and that precisely makes these - grand buys at the 20,000 mark.

Within the PSU space there are 3 sub-segments, which offer tremendous value to investors and a great element of safety considering that the markets are perched at the 20,000-mark and there is noise of global turmoil economically as well as in the markets.

So in that context, PSU power capital goods is a sub segment that we like and within that, we would still lead with the likes of BHEL and NTPC than the BEMLs and BELs, and then the Power Grid and Power Finance kind of stocks.

Q: What is it that you expect to see by way of earnings performance from something like NTPC next year?

A: We would not want to place earnings growth as the sole reason for buying these stocks. I think the bigger drivers would be revival of disinvestment direct or indirect through the strategic mode or the IPO mode or sustained offering from the government as it strides to set its balance sheet right. I think that is going to be one driver.

The second driver is the lack of fancy factor. Over the last 8,000 Sensex movement through 2007, we haven’t seen PSU participate with full energy and therefore the underperformance factor or the lack of fancy has led to tremendous under ownership of these great stocks and so as and when the under ownership corrects itself, the fancy for these stocks would rejuvenate and that would make them better performers compared to the rest of the market.

Then comes the underpinning in terms of fairly good robust performance. We have seen the likes of NTPC or BEML or a BEL give QoQ performance; that is not as steady as the public limited companies for the simple reason that there is lumpiness or because of government policy has not seen the traction or suitability in QoQ performance. But overall we maintain that the entire PSU power and power capital good space will continue to give a good performance. A 15-20% EPS growth cannot be ruled out particularly over the next 3 years. So that gives one the confidence to buying into this space.

In the PSU space, the leader in terms of buying for 2008 would easily be the oil sector followed by the fertilizer space.

Q: Oil segment- with all that is happening in terms of the policy, with the way crude is moving, what do you see by way of financial performances particularly for the oil and marketing like HP, BP, although not so much of ONGC because that would benefit, what are the kind of returns that you would expect over 2-3 years?

A: Over 2-3 years easily a two-bagger if not more. It is extremely economically infeasible for the government to sustain the kind of bleeding these companies are sustaining because of an administered pricing policy. So either directly you have to allow market driven prices or indirectly through bonds or some other method, one has to make good the losses to these companies, which automatically will reflect, in the stock tickers of these companies.

My theme for 2008 rests more on the confidence that here is a good business which is suffering because of externalities not intrinsic to the business and these externalities cannot continue for too long and hence if you were to buy an oil or a fertilizer space, particularly the PSU one given the huge case of land, real estate holdings, under valued operating assets, I think one cannot go wrong but I wouldn’t want to wedge it a 3 year time horizon.

This is a classic contrarian buy scenario for the long-term investor and one should be prepared to look at a 5-year period whereupon one can almost underwrite a 2 to 3 times gain.

Q: With the all the developments that have been announced so for, for the fertilizer pack what is your long-term view on this space?

A: I think the fertilizer space is going to be a big indirect beneficiary of the retail revolution and the agriculture revolution that is incipient in this country. We are seeing the first signs of it and we will see fertilizer as a commodity run away into the realm of consumerism and significant jump in offticks will take place, market driven pricing will come in over next half decade, there will be elements of price control and all because it is a sensitive area. But having said that, I think corporate farming is coming in, and the retail revolution is going to trigger of a need for better quality in stuff and fertilizer is bound to benefit.

So if one takes the combination of all these sectors I think one will see the fertilizer space give 2-3 times kinds of gains and one must not forget that all of them are sitting on gold mine that investors love to read about - in the stock, that is the land banks and real estate values.

Source: Moneycontrol.com