Buy cos with strong biz models: HSBC Pvt Banking

Ajay Loganadan, Head-Investment Advisory Group, HSBC Private Banking, said it is good to see some semblance of rally in the midst of all this gloom.

He feels long-term investors should start buying fundamentally strong business models that are not too highly leveraged. "In this price erosion, there are pockets where there is value. It is in various sectors and not just in certain sectors. Investors should stay in companies where there is a fundamentally long business models that are not too highly leveraged. We are advising our clients to look at equities as a long-term investment and wealth builder. When you start to see the markets trading at reasonable to cheap valuations, that’s when you need to start picking up."

Excerpts from CNBC-TV18’s exclusive interview with Ajay Loganadan:

Q: What would you put it down to the relief of the last couple of days?

A: We had a couple of days of rally. The last couple of times it was basally gloom and doom. We are seeing some amount of value buying. But with oil having come off from USD 145-147 per barrel down to USD 130 per barrel, it is some amount of sentiment relief for the market.

There are concerns be it global or domestic which still loom very large. It is good to see some kind of relief rally whether it is from the correction that we have seen from 21,000 or even last month’s run from 17,500 to 12,500-12,600 in a short span of time. So, some amount of that needs to be retraced probably in the midst of bear market rally, but it is good to see some semblance of rally in the midst of all this gloom.

Q: The next big catalyst is next week and that’s from the political front, do you think a positive decision of either the government staying in place might help to extend this rally or will it be a bit of a come and go event?

A: That is going to be the big trigger for markets. It is very difficult to say and that’s what the market is possibly anticipating at this point of time. The situation on the political front is not something just for the week but for many months to come. It is something that is going to concern the markets, as they don’t like uncertainties. That’s something that we are going to have to live with for the next 6-9 months. The markets are going to take cues from next week’s news and either move up or down.

Q: Do you think a lot of people are changing their cash calls on this market right now? Are people beginning to look for buying opportunities or is it too early to take such a decision?

A: The markets are trading close to 12.5 times FY09 earnings. That makes India look relatively cheap by historical standards, or peg ratio vis-à-vis many other emerging markets. On a relative basis, when compared to other emerging markets, it might look a little bit more expensive. But when you compare it on a PEG ratio, we are cheaper than most other emerging markets.

For a long-term investor, below 13 times or even at 13.5 times are levels where one should be looking at starting to pick up some amount of quality stocks. In this price erosion, there are pockets where there is value. It is in various sectors and not just in certain sectors. One has to be prudent about staying out of over leveraged stocks and companies. Investors should stay in companies where there is a fundamentally strong business models that are not too highly leveraged.

From an overall perspective, if you look at Indian corporates, we are in a much better situation than many other economies, where leverage positions are much higher. From that perspective, one hopes there is some amount of value buying. We are advising our clients to look at equities as a long-term investment and wealth builder. When you start to see the markets trading at reasonable to cheap valuations, that’s when you need to start picking up.

Mutual funds are still sitting on pretty significant amounts of cash, which ranges from 10% to 20%. So, some of that has been coming back to the markets in the last couple of days.