In an interview to CNBC-TV18, Pashupati Advani of NBIE shared his outlook on the market and stocks across various sectors.
Below is the verbatim transcript of Pashupati Advani's interview on CNBC-TV18
Q: What would you do now, take profits here or do you think this rally has legs from here?
A: I think take a holiday, it looks like everybody else seems to be doing the same. It is very quiet. I think there is a lot of concern about a potential downgrade and that is keeping people on the sidelines.
I heard one of the other guests say earlier about looking at the rupee at 57-58, if the downgrade happens – it could happen - the rupee could get even weaker. However, foreign institutional investors (FIIs) continue to buy. So that is a good sign. So I am pleased about that.
Q: Do you expect to see any tangible difference in terms of flows and the amount of interest we have been getting because of all this downgrade talk?
A: As you said we have got two schools of thought. One school of thought believes that there is not going to be a downgrade and therefore this is the time to load up and the other school says that there probably will be and therefore let us wait. One or the other is going to blink first. Certainly May traditionally seems to be the month of inaction, so people are saying okay let us wait till June and see what happens. We are already halfway through May anyway.
Q: We have had a fairly sharp rally through the first part of May itself. If you had to line out downside risk for the market as you saw it, how deep do you think it could get?
A: I actually do not think that there is going to be that deep a downside, however the Ben Bernanke has made a statement that they are going to maybe stop pumping in so much money. That has just brought in a little bit of uncertainty to the market because the market was enjoying the free ride and that is what has put a little bit of a dampener on it.
I do not think he is going to stop. He just has taken the enabling permission to stop. I do not think the program will really allow him to stop too much. So that is why the Dow continues to keep going up and money does end up flowing into emerging markets and therefore money does flow into us as well. So that is definitely one of the things that we are looking forward to.
Q: Do you think the market need to consolidate though here after the rally or do you see it taking out that old high of 6350 or 21000 plus and rallying further on from here?
A: It seems to be nibbling on it. More and more money comes from the west and we are seeing it. This is because there are not that many investment opportunities available. Europe is still in the doldrums, people are concerned.
The French have given some pretty bad economic numbers last week, so people are really scared about what is happening in Europe, so money is coming into emerging markets and we are seeing our share. Even though people are slightly underweight, in India, just the sheer amount of money that is coming into the system is actually making the markets go up.
Q: In the last couple of days there has been some revival in sentiment in the higher beta space like infrastructure and real estate. Are you buying that theme?
A: I believe the Finance Minister has been talking about doing certain things for infrastructure. I believe he is on a road show in Europe and then he is also going through the Middle East which is the pocket of serious sovereign wealth funds and he is talking about giving some kind of incentives for people who make bets in infrastructure.
I think if any of it comes through, right now infrastructure seems to be on the shelf but as the project starts waking up again, the old traditional players will be able to unlock some of their older projects, take some money off the table and then get back to business which is what we all require in this country.
Q: Is that the space that you would bet on then? Some of these builders, construction companies - that leg of infrastructure rather than capital equipment etc.?
A: I think the purest play is just straight cement. We really do not care about who is going to start building but the fact that building does start and that drawdown is going to come into the cement companies and we are seeing that. We are seeing people pretty comfortable owning cement stocks.
Q: How do you approach real estate in that light?
A: I think we are going to get plenty of opportunities to buy into SPVs during the year rather than buying into the real estate companies itself. They are going to ring circle three-four projects with the development already done, the permissions in place and they are going to sell shares in those. That is what is actually going to happen and that is going to give some amount of equity money to the promoters. That will then get them to go back into their real business and then continue with the development business. So I actually see that the real estate companies are going to split into development companies and SPVs and that will unlock value in the sector.
Q: What are you doing with the banks now after the recent rally?
A: People are looking at banks as being the first line of aggression and the high-beta is what everybody wants. So people have dived in. We are all very comfortable with the banks here simply because with more money there is less likelihood of loan default and that is better for the system. If infrastructure starts to kick in again then the loan defaults will become even less and less, so that is what everyone is looking forward to.
Q: How do you see midcaps doing now as May winds down and we get into the monsoon months? Do you see midcaps have a chance of playing catch up or do you see this being a narrow market fuelled by Foreign Institutional Investors (FII)?
A: No, I think that the FIIs come in and they push domestic investors out of large caps into midcaps and that has not happened yet because the amount of money that has come in has not been so big.
On the other side, the supply side, we have had these lot of Offers For Sale (OFS) and a couple of new issues also, but mainly there has been a large number of value of OFSs, so that has sucked up a lot of the new money. The minute that stops then people will start looking at midcaps again.
Q: You were making the point about the currency. What to your mind is causing this much friction on the currency and this much of a divergence in movement with what our equity market has been doing versus what the rupee has been up to?
A: We certainly feel that there is some kind of pressure on the rupee because the exports and imports are not actually balancing. The thing is that we still continue to have a Current Account Deficit (CAD). We made numbers suggesting that they are going to be within line but until they actually come to that line however they come, people are going to have doubt.
A lot of things have been done to fix it in the sense that we have got lower oil prices, plus we have got this higher import duty on gold which has stopped the gold import, that is coming officially. So both these things have been very positive in trying to curb the CAD. However, there is a lot of government spending and that still needs to be curtailed before we see that CAD totally comes into line.
Q: How are you reading the Domestic Institutional Investors (DII) numbers? They continue to be on the sell side. Is it because of continued redemption pressures or do you think people are taking tactical calls by taking profits at higher levels?
A: It is a combination. Most of the mutual funds domestically are keeping their powder dry simply because they feel that there will be a slug of new government offerings, or new paper that would be interesting. Therefore they would like to keep their powder dry and of course there are redemptions. So it is combination of the two. Most of the people are sitting on cash right now.