Analysts on the street feel that interest rates, inflation numbers and rising crude prices have been hindering growth of the Indian market. PN Vijay, Portfolio Manager, told CNBC-TV18 that the Indian stock market is negatively correlated to oil over the past three years; however, he thinks that a recent drop in oil rates on the back of the International Energy Agency’s (IEA) announcement to release 60 million barrels is likely to push the market up.
Vijay also spoke about his multi-bagger ideas while giving his reading on the market.
Below is a verbatim transcript of his interview with CNBC-TV18’s Sonia Shenoy. Also watch the accompanying video.
A good stock basically is driven by a slew of bad news so it had to dimension each of the bad news. The first is of course the whole imbroglio of promoters share pledges and people saying that many Indian companies have pledged their stock in a bear market where might be margin calls. Well, that is theoretically right but I don’t think that’s going to happen in Orchid for a few reasons.
The trigger point is far below the present market price and at that point, again at least 10 Indian companies jumping and buying Orchid and triggering an open offer. Normally, these blogs will quietly go into blog deal with the institution and be done with it. So I think these are exaggerated head winds really on Orchid.
The second is the more real one which is the FCCB. They have got another big FCCB redemption coming in at the end of this year. But what Jubilant did a few days ago, they have already taken the approval of the board for a QIP and my sense is that the current working of the company is so strong they would be able to do a QIP placement of around Rs 250-260 or so which means that the capital will go up by about Rs 35-40 crore. But the company will become a debt free company.
So from that point of view it might be a mildly pace accretive. So these two headwinds are there. But I think the markets exaggerated them a wee bit. On the ground, 2011 has been excellent as their topline grew very well. The bottom line was okay. However, they took a huge one-off benefit last year when they spun off the injectible divisions. So I think most of the people are bullish about 25-30% growth in the next 1 or 2 years. The share is trading. We expect EPS of around Rs 22 per share in the coming year.
So it’s trading at about 12-13 times its current earnings, which is lower than its PE at the bull market low at the beginning of 2009. So on the band, it’s somewhere way below its normal band. So I think all these things considered, Orchid is a good contrarian pick and I expect the share to touch about Rs 350 in the next 12 months.
IndusInd is a proven story. Two years ago, there were front sitters like us. However, over the past 2 years, the performance has been phenomenal. They cleared a net interest margin of 3.5% and more importantly, the credit growth is very handsome about 29% or so while the average in the industry was much lower.
Thirdly, the capital adequacy is good. They are close to about 16% of capital adequacy which gives them enough headway to grow quite fast and they have done a great job on the assets. Historically, IndusInd had a problem on its NPAs, their NPAs are really down and in terms of standard provisions they are way above 70% prescribed by RBI. It’s not so cheap; it’s at about 2.7-2.8 adjusted book-to-price.
However, I would still buy that because the quality is very good and I think here also we should shoot for something around Rs 360 in the next 12 months. Here, the downside I would say is quite limited.
Q: Finally an EGoM meeting is happening today. What are your expectations? What do you think realistically can happen?
A: Firstly, let it happen. I think the EGoM has got a huge bonus from the International NSG Association when they released the results. I think they were very disappointed that the OPEC not doing anything. It’s a calculated game that the west is playing.
The EGoM needs to get its FPO act going which means that it needs to keep that 35% subsidy on ONGC well articulated and intact and it needs to show some activity on prices. So it would voluntarily take a hair cut on excise duty and customs duty.
It may also pass on some increases to the consumers and also have a road map for Kirit Parikh. Some of the actions of the government on the economic front suggest some amount of decisiveness. So I think at least the uncertainty about oil pricing maybe removed to a large extent and I found that the specifically the Indian stock market is negatively correlated to oil prices over the last 3 years.
So if Nymex does stay below 90, the Indian market may see Indian inflation coming down and growth growing back on track and we may get a leg up. There is a hugely important meeting. The markets are too big tail winds, the oil release and the Greece issue. There is a political will in Europe to get around to the messy sovereign bet. Let’s see how the day events unfold.
Source : moneycontrol.com
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