PN Vijay, Portfolio Manager, gives his outlook of the markets today on CNBC-TV18.

He also
picks out his top favorite stocks for the day.

Below is the verbatim transcript. Also watch the accompanying video.

Q: A quick word on how the market will react to the fuel price hike?

A: I think there will be initial weakness because, the inflation, though it fell a tad last week, is
still high. In the long-term, government appears to have made up its mind to bite the bullet in
terms of fuel prices. It is just a matter of days before diesel also goes up and probably LPG too,
but I am not sure of Kerosene.

My sense is, the biggest worry for government is the fiscal deficit. Now with the election out of
the way, they are not too concerned about the fuel impact on inflation. They are hoping that
monetary tightening and better food situation would bring down the overall inflation. So clearly,
the strategy of the government seems to be to reduce the subsidy on itself, which may not be a
bad thing in the long run for the economy. I’m unsure of how good it will be for the stock market
in the short-term, but clearly, this is return-back-to-reality by the Union Government which I
think, for a long-term investor, is good news.

Also read: Post petrol price hike, under-recovery at Rs 5/L: BPCL

Q: You’re confident they will move ahead on diesel as well because over there, the
sensitivity to inflation is so much higher that one worries about the impact on inflation?

A: Parliament sessions is in early July and before that, the Lokpal draft bill will be out. Then
with 2G, the last set of charge sheets have been filed. So, on the politicians’ plates, these would
be more interesting things. There would be that odd road block against price rise but people will
go along. I don’t think this will affect the auto industry in any great way. It will have a small
effect for a few days. The government is worried about the fiscal state of the economy. I think
RBI has also been telling them that there is only that much they can do monetarily if you guys
open all the doors and allow the flood. So they will go ahead and do something on LPG and
diesel on 23rd.

Favorite stocks

Tulip Telecom

It is a very nice business model. They are in a very dominant position in virtual private networks
(VPN). Most of the corporates have these private networks for communications and video
conferencing etc. It has become the rage of the corporate world these days, especially with so
much of international operation. It is also cost effective. These people have a dominant position
there.

They have moved into Optic fiber backbone, away from conventional wireless backbone, which
is much more profitable for them. So, the margins are showing up and they have got a huge
facility up in Bangalore which can give them more volume. All this is happening and the pricing
is decent too.

Looking at this midcap technology driven stock, I feel that you should look at what happened
over the last six quarters – you may get some ugly surprises.

What I like about Tulip Telecom is, they have been very consistent, EBITDA margins have been
consistent, topline growth has been consistent. I like the model and it’s a very good midcap
telecom story.

BGR Energy Systems

BG Raghupathy, of course, is a very experienced power sector person. He started this company
with a German, some 25 years ago. He bought over the German, started as an equipment supplier
to BHEL, and from equipment, last 5-10 years, moved into EPC contracting. So they are a very
big power related EPC contractor and doing extremely well.

One will have to remember that these contractor companies have long project cycles, have
working capital etc. Given these factors, the share has corrected a lot from Rs 800 to 500. The
earnings are robust, the order inflow is good. There are interest concerns on working capital
which an investor should remember. On the whole, if you want to have a good, fairly safe power
sector pick, as an EPC player, BGR Energy is the best.