See FY09 Sensex EPS at Rs 900: Raamdeo Agrawal

Q: What about metals – this quarter was good for many of the metal companies, what do you expect to see for Tata Steel and Hindalco going forward and how would you positions yourself in those stocks after their recent beating?

A: Arcelor Mittal’s guidance for Q3 was bought down from USD 8.5 billion that was achieved in Q2 to USD 2.5 billion and it is the best estimate at this juncture, so things could be even worse than this.

So it’s a no profit situation one is talking about. Marginally, there could be some loss as well for the quarter. I don’t think Corus would have a better outlook than what Arcelor Mittal has spoken about. But as far as Tata Steel’s Indian operations are concerned, I think they will be in a better shape. There could be some challenges in selling all their production. But their profits will be lower than Q2. They will have reasonably good profit in Q3.

Q: You track the two wheelers more closely than the four wheelers. But how would you approach autos now?

A: Autos is a discretionary spend. Car are extremely sensitive to the availability of liquidity at the right price. During the past year, banks completely stopped giving loans for consumer durables. The cost of loan had become very high; 14-15% is not the rate at which you can buy a car.

If interest rates fall by 300-400 bps from here, that will kick-start the consumer loan. If the economy grows at 6-7%; I think at some point of time the domestic car demand particularly popular segment has to take off and that will be one of the indicators of economy coming back on race.     

Q: Stocks like Tata Steel and Tata Motors at the end of a down cycle trade at ridiculous valuations- have you seen ridiculous valuations in  those stocks yet or do you think they can settle at even lower levels and give  you better opportunities to buy?

A:  Tata Steel never had overseas operations like Corus. But going 8-10 years back it never traded significantly below the book. When earnings are uncertain, you cannot see long-term earnings and the only way one can judge a company is by booking or by replacing cost of assets etc, so it never traded below book and today it is trading at 0.5 of the book or maybe even lower than that.

So clearly there is pessimism about what Corus could do to the company. The market fears the losses in Corus could be so big that it could erode the Company’s present net worth. The stock may go a little lower.