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Devendra Nevgi, CEO & CIO of Quantum Asset Management Company Pvt Ltd said that it is very difficult to take a call on the market on a daily basis. He feels the Indian markets certainly looks attractive to the long-term FII investors. He said that 15% of the FY09 earnings looks attractive, if one believes in long-term India’s growth story.

Excerpts from CNBC-TV18’s exclusive interview with Devendra Nevgi:

Q: What is the call for the rest of this month, is this the worst you think that it can get or might we see lower levels?

A: I think it is very difficult to take a call on the market on a daily basis. I believe that FII flows to the tune of around USD 5 billion have gone out of the market. That maybe around some of the hard flows that had come in last year. The Indian markets look attractive to long-term FII investors. 15% of the FY09 earnings looks attractive if we believe in long-term India’s growth story. In the short-run there might be some negative moves caused by negative global cues that are there in the market. But the long run would be a good time to trade in the market.

Q: What about the interest rate situation because we have had an uptick yesterday, how are you positioning yourself in some of the interest rate sensitive sectors now like banks, autos, real estate?

A: I think the repo rate hike was more or less expected by the bond markets, maybe not fully by the equity markets because the bond markets have already reacted by 5-10 bps. I do not see any major rise because of the repo rate hikes in the interest rates on an immediate basis. But yes, I certainly see the Reserve Bank of India (RBI) showing some hawkish signs on the inflation. As and when the oil price hikes get factored into the inflation numbers, it might inch very close to double-digits.

The RBI would maintain its hawkish stance towards the interest rates and inflation for the simple reason that they might be able to give up a little amount of growth even if they have to control the inflationary expectations. I think banks and autos sectors will be impacted and I think that the hawkish stance has already been in the price of some of the banks and the auto sectors. So there is no point in reacting to these kinds of changes to churn the portfolio in the short run.

Q: You have got quite a bit allocated to energy as well as a space. What leg of energy do you like right now between power and oil and gas and within that is it upstream, downstream what you prefer?

A: If you look at the Quantum long-term equity fund portfolio, we have got exposure to the oil and gas upstream as well as oil and gas downstream. As far as upstream goes, we do hold Oil and Natural Gas Corporation (ONGC). On a longer-term basis ONGC being available at a P/E of around 10, looks reasonably attractive.

As far as the downstream goes, if you talk about the three major oil companies ie. Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL), there are problems now and these problems have cropped up because of the wrong policy adopted by the government as far as the oil prices are concerned.

The misallocation of resources within the economy from oil companies to fiscal deficit to consumers has created a lot of issues. But we believe that ultimately there will be a long-term solution to it and these stocks will continue to do well.

So we are holding onto the Quantum long-term equity fund. We have exposure to the oil and gas upstream as well as the downstream.

Q: Give us one word on HDFC, which is your second largest holding. Last we checked for the quantum long-term equity fund, the stock was down 7% on the interest rate concerns. How would you look at that stock in terms of valuations and prospects in this interest rate environment?

A: HDFC is in much better position than anyone in the country to understand the interest rate environment. A company with a strong business model, with fantastic people behind it and a very strong and knowledgeable treasury, they should be able to manage this interest rate risk via various options that are available in the markets. So we are not really worried about the 25 bps hike in the repo rate and how it will impact a company like HDFC in the long run a company. HDFC has probably seen interest rates going upto 15%-16% way back in 1998 and is still the same. The growth on the loan side and the advances side is still very strong. The margins on a Compound Annual Growth Rate (CAGR) basis in the long-term look reasonably good. So we really do not feel the need to act or react because we have value investors. We do not really react to a 25 bps hike, which may or may not translate into a significant and negative impact on HDFC’s bottomline.

Disclosures: My family, my fund and I may or may not have any personal holding in the stocks and sectors discussed.

Source: Moneycontrol.com