First Global takes a U turn on Satyam..........

Friends,

It is rediculous to hear from First Global taking a U turn and now speaking in Media that they like Satyam! It was they who gave a sell call and predicted that Satyam will become ZERO.

I don't know how much people needs to follow them but I think that they should be brought to books why they gave a sell call on Satyam and now projecting a target of 120 which is very near to my target of 150.

Devina Mehra of First Global likes Satyam as the company still has a real business and real clients. "We see Satyam’s FY10 EPS at Rs 9.5."

With regard to markets, Mehra said largecap stocks appear fully valued. She added that valuations in the market are still very expensive. "There are over-expectations in the market in terms of the Budget."

Global equities, Mehra feels, will see a correction but that may not be a huge one.

Also read: Exercise caution at current levels: Motilal Oswal AMC

Here is a verbatim transcript of the exclusive interview with Devina Mehra on CNBC-TV18. Also watch the accompanying video.

Q: What are your thoughts on Satyam and this turn around that we have seen in the stock over the last few sessions?

A: We like Satyam because if you look at Satyam it is not like Worldcom or Enron where the whole thing just disappeared at the end of the scandal that broke out and at the end of it you had only debris there. Satyam had a real business and it still has real clients willing to pay for that real business. Valuations were still factoring-in scandal ridden management whereas the management had changed and the business was still going on pretty much as usual; slightly lower volumes as can be expected but nothing disastrous. For FY10, even assuming some revenue decline and assuming a 25% EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization), which we had modeled for, we are still getting an EPS for about Rs 9.5. So it looked attractive. We have a buy out there on the stock with a target price of Rs 110–120.

Q: What about the market? We have come a long way since we spoke last from 15,500 how do are you guys mapping it?

A: It has not come such a long way in terms of the Sensex when we last spoke. I think we spoke couple of weeks ago and I had said that I see a party continuing basically most of this month. The run up to the Budget and especially on the midcaps that has pretty much panned-out and my view still remains the same that a number of largecaps appeared fully valued. If you look at BHEL or anything of that kind or Reliance or L&T the valuations are still expensive. You are still talking 25–26 times earnings for most of them. For commodity stocks like Reliance, you are still talking 18–19 times earnings. The good bank like HDFC Bank is still at 3.5 times book value. So the valuations seem to be capturing most of it as far as the largecaps are concerned. So that remains the cause for concern. There is some amount of over expectations with the Budget so let us see how the Budget is able to meet that.

Q: What about the global backdrop in terms of equity markets? Are you feeling comfortable about that as well or do you think it is looking like it is beginning to stall now?

A: I think global equities again will see a correction maybe not a huge correction but a correction nevertheless. If you look at economic fundamentals also you had all the government just throwing everything they had into the cauldron for an economic recovery so every possible fiscal measure, every possible monetary measure has been taken. But a lot of the core problems in terms of the restructuring requirements have not been sorted out so you still have a situation where there is possibility that either with a small recovery you have a flat lining or you again have a decline so that becomes a problem. You look at the US for instance, this week itself, in spite of the short term rates being cut to virtually zero you still had the government bonds yields going above 4% so the market is also a bit jittery on a lot of fronts including inflation. Whether with still high unemployment rates you can really have an economic recovery.

Q: So how are you mapping the rest of the year from here? From where we are, do you see modest upside and what about the downside in case of a retracement?

A: Like I said, up to the Budget things look very good and one will have to take a call then on what happens specifically on various sectors. What level of disappoint or happiness is there with the Budget. I think here also the government is working with a lot of constraints. You have a situation where you do not have that much levy on the fiscal side even without massive investments you are still talking of a 10–12% fiscal deficit. Again the GDP numbers here is a bit misleading because you had the GDP coming in ahead of expectations but when we disaggregate the numbers we found that that the nominal GDP had actually dropped very dramatically from about 19% growth in Q2 to 8% growth in Q4 whereas the real GDP did not show that much of a drop and that was because the inflation measure was showing a very low reading. I am not sure whether that inflation number completely captures what is happening in the economy because you had the tax collections coming in below expectations so what is really happening in the economy is a concern. So I said a number of tools and the kind of headroom the government has to do many things. That is limited. Also the government’s priorities may not be the same as what the markets priorities are. If this government goes for an inclusive growth policy which means that one has to look at what is happening in the villages, what is happening to the poor which may or may not go down that well with the markets in the short-term. In terms of macro risk factors, the other one is whether how the monsoon does because this time whatever recovery or lack of a slowdown we have seen is all getting driven by rural demand. So one part is that if monsoon fails there is a direct impact on the agriculture side but it will also have an impact on many other goods because of the pattern of the demand.

Q: Did you have a chance to look at the acquisition Sesa Goa made overnight? Any thoughts on that?

A: I have not really had a chance to look at that so I would not like to comment.