Fertilizer space looks promising over next 2 yrs: Enam

According to Kashyap Pujara, Enam Direct, fertiliser is one space where with the rising international prices; incrementally over last seven-ten years, there is hardly any investment towards fresh capacity. He believes that there could be some policy changes over a period of time. Therefore in a two-year horizon, this space looks promising, Pujara added.  

Excerpts from CNBC-TV18's exclusive interview with Kashyap Pujara:

Q: What’s the sense you are getting from your HNI clients right now. Are they still apprehensive about putting fresh money to work fearing more downsides or has some amount of confidence returned after last couple of months?

A: If you look at the backdrop of what happened over December till date, then we saw a raging bull market and which actually lead to a frenzy fall. I think the panic level has shot up considerably and investors are highly nervous. As things stand today, the fear has come down though the nervousness is yet there because of the global uncertainty adding to that the local issues. The investors are looking at maintaining some cash levels. But overall investors have to reconcile that this is not going to be short-term driven investment philosophy; one has to look at one-two year kind of an investment horizon. So in that sense most of the investors are reconciling to the facts and trying to look at investing at the current juncture from an investment horizon of two years.

Q: What are you telling your clients at Enam Direct to do right now in terms of cash levels, sectoral exposures?

A: We are looking at investing in the markets from a two-year horizon. We are not looking at anything from a near-term, quarter or two quarters kind of a horizon. The basic idea is that looking at the current uncertainties in mind one doesn’t know which side we are going; so near-term prediction is going to be fatal. But if one looks at the macro picture in terms of consumption or the demographics, India story is yet holding true. So from a two-year horizon one will find lot of bargains in the market. This is a good time to look at bottom up stories from a two-year horizon.

Our strategy is to focus from a medium to longer-term duration and at the same time we are looking at sectors where we see value. Fertiliser is one space where with the rising international prices; incrementally over last seven-tern years there is hardly any investment towards fresh capacity. So there could be some policy changes over a period of time, which basically if one looks at a two-year horizon this space looks promising.

Even if one is looking at other space like natural resources front; the importance of natural resources especially companies who have backwards linkages to raw material is yet been undermined and to that extent this place will also look good from a two year horizon. Probably banking also if one looks at two-three year horizon; I think banking stocks do offer value where there are adjusted book values. The banks are quoting at reasonable valuations in terms of multiples to the adjusted book value. If one looks at two-year horizon wherein inflation probably might get reined in or gets subdued over a period of time, I think bank stocks look good too. Add to that, one might see some policy changes going forward in the next two years wherein the second phase of reforms might kick in and one might again find small private sector banks spotting as acquisition targets. So these are broad themes which one can look at over a two year horizon.    

Q: What is it that you would prefer from banking space between the PSU and the private? What are you leaning towards?

A: We will not be able to give any stock specific views. But if one looks at the valuations, then most of the private sector banks are also quoting at less than 1.5 times forward adjusted book and even the PSU banks are quoting at close to 1-1.2 - 1.3 times. So both these spaces offer relatively good value. The question is that one has to then do a bottom up analysis as to which of the banks on a stock specific basis one wants to play on. That’s what one has to look at.

Q: What is it that you have decreased exposure to in these past few months across client portfolios?

A: I will not be able to discuss the strategy specifically. But these are the themes that we are looking at - fertilisers, natural resources, banking, probably alternative fuels wherein one is looking at such high level of crude price. Also one saw coal also going up and probably alternative fuel also hold good promise. So focus is on, on these things. 

Q: What are you telling your clients about the rest of 2008?

A: Lets look at March FY09 perspective; when we are looking at earnings of close to Rs 950 on the Sensex and when one is looking at 2010 from a two year horizon, I think the valuations are not all that expensive. Because of the macro situation with the rising crude prices, definitely there is a pressure on the domestic front in terms of higher energy cost of subsidies. These are near-term concerns which one will have to bear out. So if one is looking at 2008, next one-two quarters one will have to look at riding out the rough times but clearly with a focus of 2010.