N Jayakumar of Prime Securities, in an interview with CNBC-TV18′s Udayan Mukherjee and Mitali Mukherjee, feels that the market has been discovering newer ways to make tops and bottoms. He also said that people have been preferring commodities more than the stocks which is the classic sign of bottoms getting established.
He further stated, “The last bottom of 5,177 or 5,200 would not get violated.” He added, “We have made slightly higher bottoms than the 5,177 levels tested several months ago. We are very close to 1-2% away from a bottom unless something dramatically new emerges in the world.”
Below is the verbatim transcript of the interview. Also watch the accompanying videos.
Q: Does it appear to you that the market is finally close to forming a bottom this time around with the patterns that we have seen for the last few weeks?
A: The markets have been discovering newer ways of making tops and bottoms. At most times, the investors were offered an option of a sharp straight cut vis-à-vis the slow poison which was seen over the last several weeks and months.
While on one hand, business or financial market developments have been taking place a lot sooner than what people believe. On the other hand, markets have been taking much longer to find bottom.
Valuation bottoms or price rise bottoms might be close at hand. Time-wise, we might still be in for this extremely traumatic and agonising period, where volumes shrink and the participation disappears.
The classic bottom formation in the past has been such where the investors’ apathy was high. This time, it has been unbelievably high. The pink papers tell that the retail participation is at a five year low.
People want to talk commodities far more than stocks. Silver and gold are more appealing to people than Reliance and Infosys. These are classic signs of a bottom getting established.
I don’t think that the last bottom of 5,177 or 5,200 gets violated. If we go back, we have made slightly higher bottoms than 5,177 levels that we tested several months ago. We are very close to 1-2% away from a bottom, unless there is something dramatically new that emerges in the world.
Based on the factors we already know like Greece debt crisis, inflation, etc, these factors cannot create a lower low. We would need something dramatically different from all this.
Q: What do you think about State Bank of India ? You mentioned about a bottom formation. Do you think that the big bank has bottomed out?
A: SBI has firmly bottomed out. The factors like new chairman coming in, over provisioning and very aggressive Q4 management resulted in its investors getting peaked quite disproportionately.
At some point in time, there might be short-term pressures because of the rights issue. From the perspective of a sector and stock, it has been 40% higher and nothing has changed. Advance tax collections are high. The economy is in fine fetal.
The RBI talks about growth not being an issue as yet. If that were to be taken at face value, we may have one more rate hike. Another important thing is oil which is down almost 15% off its peak.
In fact, if we take the WTI, it is almost off 20% of its peak which is a significant cut. Oil is headed significantly lower.
Q: What do you have to say about Reliance ? Do you think that it is close to a bottom?
A: If I could predict where Reliance stops or bottoms out, one would have been in a different profession. I have no clue about that. My sense is that there are big fundamental developments happening in terms of the money coming in from BP etc.
The last word is not out on the gas production of the KG-D6 basin. To add to all this, a new development which is CAG (Comptroller and Auditor General’s) report seems to have spooked the market.
If you want to go short this market, this is the easy way to do it. There has been some investor disenchantment which the management needs to address.
Nobody knows whether the report is leaked or not leaked and whether this has any bearing on the developments. It is like one more straw at the camel’s back. I don’t know where Reliance bottoms out.
The chartists have been taking somersaults in telling that it would go down much lower. Fundamentally, it would have traded much higher, but one cant say where it can go on the short run.
Q: You have been tracking the shipping space closely. Do you remain bullish on some of the names like ABG ?
A: We have been very bullish on this stock. There was an announcement that took place 18 months ago that was not noticed. I don’t know if China presaged social unrest in different parts of the world, but they had their own coming. They increased wages 35% across the board. This was the highest ever wage increase that China had put together.
For a 35% wage increase, they wanted to stroke domestic consumption and keep social unrest at bay. We cannot give 10 club sandwiches to a hungry guy and ask him to start consuming. The consumption will take time.
In the short run, it made a number of their mass export oriented industries uncompetitive. The two big spaces where wage intensity was at its highest in China which led to their export was the ship building industry and the textile space.
Textiles have become uncompetitive and one of the reasons is this. The second is the ship building industry where the number of orders, from that part of the world, combines with the highest number of ships scrapping that has been in the world for past few years and has resulted in orders flowing through.
At least for the smaller ships, orders are flowing through China to India. The Indian ship building industry is further helped by the move to defence where two names Pipavav and ABG stand out.
Marketcap of Pipavav is three times ABG’s that is the reason why we like ABG a lot. The marketcap catch up has to play out. Promoters have been increasing their holding. Their debt levels have come down pretty sharply. The company has substantially a better balance sheet and well managed fleet.
Q: What would you pick in textiles because the excitement and depression has been around SKumars depending on whether Reid & Taylor IPO will happen or not? Are you focused on that or other names there?
A: I don’t know the valuations that the Reid & Taylor IPO is talked about. I am not too sure if the numbers are being touted around for the valuations, are numbers that are taken off brokers, are there whispered valuations or are these valuations being sort for.
In the absence of that, the textile space is a lot more than a brand here or there. Textile space is dramatically in a sense being reenergised because of China which has become uncompetitive in recent times. There is no question about it that the Indian textile space is headed for a much bigger time.
There are two parts to that – one is I don’t believe that the Indian consumption and brand story is understood like Titan. One more brand launch may not necessarily do much to that space. The dramatic export thrust that we are getting and where textiles are contributing is a bigger takeaway.
The other part about midcaps is that the ticker price is not attractive enough. That is the price that you see on the screen everyday. We have Andhra Papers, Sabero Organics and Camlin takeover candidates which tell that this sticker price for a sell out is higher than the ticker price that you see on the screen.
The real hope in this market is strategic interest, delisting interest and interest where promoters are increasing their holdings. This is the story of the next two-three years in the next rally. It is not in the Nifty that you need to find solace.
There will be the calls people will make on that. The real call will be on the consolidation story where foreign money or strategic interest comes in the delisting stories like the Atlas Copco where wealth creation is dramatic and the money that these strategic buyers get into the market is substantially more than what the FIIs are putting in. This is a story that for the first time dovetails quite beautifully with our supposed forte which is in the midcap space.