You have been prolifically tweeting your views and everyone is very excited to know what your insight is on this Hindenburg report which has hit the Indian markets. So, let me begin with how you see this because clearly, the bloodshed has gone beyond just the Adani Group stocks?
We have reached a situation in the market where there is a confluence of several factors at the same point in time and therefore, the impact on the market is coming from multiple reasons of which Adani happens to be one. There is no doubt that the report is serious and therefore, to that extent it has had an implication on Adani Group stocks. But at the same time, immediately preceding this FII movement out of India simply because of the fact that China opening up caused outflow of money.
So, there was an FII-China factor, then the Adani factor, and then a factor which relates to the fact that the best-performing sector for the last year which has been banking. Most of the results are out and there is going to be at least one more quarter of waiting for the next set of good news. In between, there is nothing really that is going to happen much with banks. Also when there is a jittery mood, some people start selling what has given them returns but they log on to whatever is giving them losses; that is how behavioural science is as far as the retail investor is concerned. And the fourth is the fact that we are all moving towards the Union Budget which is just a few days away and there is this huge hue and cry in the market and fear in the market that there will be a tinkering of long-term capital gains and short-term capital gains.
Global markets seem to have sort of settled down. Recession fears which were plaguing the market seem to have receded. Are we looking at a lot of domestic factors that could impact the market now?
Actually, we will look at global factors also because the fact that the global market is doing well will be a plus for India. The question will be, will we catch up with the global market, will we outperform or will we underperform it? But it cannot be that the global market will go up and India will continuously go down, that is not likely.
For example, if you have a global portfolio and your portfolio starts going up, then your allocation to India as a percentage will fall and there is no doubt in the world that India is going to grow; the debates are not on growth, it is on the issue that seems to be more temporary in nature. I am not specifically commenting upon the Adani issue, I am commenting upon a larger part of the market.
Of course, if the global market slows down and goes into negative terrain, then we would be in line with what is happening there. So you are right that the issues right now seem to be more India related but hopefully looking at the global market, I do believe or sense that India will catch up at some point in time with the others, particularly once the Union Budget is over.
There seems to be more of a negative fear than the expectation of anything positive in Budget. Is it all about the LTCG and these rumours that keep sparking every few years? How do you look at the overall impact of the Union Budget?
You are absolutely right. The fear seems to be stemming from long-term capital gains, short-term capital gains and whether there is going to be any tinkering as the FII investments in India are concerned.
Government of India itself is cognisant of the need for foreign direct investment and FPI investment. I do not first of all believe that the government will do anything against foreign direct investment in any form.
Now coming to long-term capital gains and short-term capital gains, given the robust collections that the government has of taxes, I don’t think at this point in time one year before the election, they will actually tinker and mess up with the capital market and divestment plans. I feel that the budget will be more like a sort of a non-budget as far as the capital market is concerned. On the contrary, there may be a slight increase in the exemptions of the tax fee income. It may benefit consumption stocks and consumption-related sectors like banking. But I do not think the budget is going to be negative in any sense.
An interesting tweet you put out just a short while ago was where you said “my grudge on the market is not the fall of Adani stocks where I do not even have shares, my grudge is the way that the panic is spreading”. You said there is so much panic right from banks to belief on LTCG to STCG, etc. What do you think the trigger really is?
When you look at FIIs from an Indian perspective, there was a very large selling figure of almost Rs 6000 crore from FIIs. Now FIIs in India are essentially of two kinds. There are long-term FIIs that are investors in a pure sense and then there are FIIs that are more in the nature of hedge funds and momentum funds that come and play what are called swing trades.
I do believe that given the nervousness around Adani stocks, the first reaction is always to go on defence and many of them may have possibly sold banking stocks or they may have even sold Adani stocks. I am not sure what is their holding in Adnai stocks but generally, they exit. And then what happens is that there are momentum players who have built up positions in F&O or people who are trading buy calls and puts and speculating in every way. There is a catastrophic effect of that reaction. I do not think that this is the market where a genuine investor would be selling.
I think this is more like a momentum trade and once it stabilises, the market will gather momentum. Let us also not forget that there was a DII buying of almost Rs 4200 crore vis-à-vis the FII selling and that compared to the last few days went up so that is a sizeable number. I also believe that the Rs 20,000 crore FPO from
is also limiting the ability to support the market. Because if you are committing to an issue in some sense, you are not going to be left with an adequate amount of capital to deploy in the market other than for the FPO. So, I do believe that that is also a temporary thing that will probably get over on Tuesday or whichever day the follow on offer closes. And then we are left with the Union Budget on the 1st and after 1st I think that life will be back to normal.
See, the question is not about timing the market between now and the 1st because that is a very difficult call to take and if I claim that I know it, I would be wrong. The point is that you are looking at buying companies that have very good earnings.
In some of the banking cases, the earnings are really high double digits. You are moving more towards the 60% to 70% mark. And all of a sudden you have cracked them and all of them are sitting with this exposure that stands naked in a sense but in reality their business has moved to a trajectory of moving away from significantly high NPAs to low NPAs. The credit cycle is about to start, people like Mr Deepak Parekh who have a great vision about the country are coming and saying they have never been more optimistic about India and a true investor will look at the return that he will have over a period of time.
Now, if he has to bear five days of pain or five days of indifference to get, for example, five years of return, what will you choose? You will only choose the opportunity of doing what has always worked and is never debated which is a systematic investment programme.
How would you play the start of the next week? Would you wait & watch to see what is happening in the budget?
I bought a lot of cement and a lot of banks. And I am not feeling uncomfortable about that. I just do not find the logic to say that they will go up with effect from Monday and therefore they cannot fall more. That would be absolutely wrong but do I see a significant upside vis-à-vis my downside? My answer is I do.
Apart from the Budget, there is going to be a Fed meeting. As global economic concerns continue, what is your take on a slightly more long-term scenario?
I feel the problems of the US in terms of the Federal rate hike are nearing an end. There may be one or two or three more months of this tapering that is going on. I do not think it will last beyond that. The economy has been much more resilient despite this. Inflation has now started getting under control. The commentary that is coming from the US companies barring the tech sector does not seem to be really worrisome. In fact, even at Davos Forum, they have upgraded the outlook on the world economy. So, I do not think we are so off track to be sort of taken for a ride as far as the US interest rates are concerned.
