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HNIs say the India story is fundamentally intact

Published on Fri, Nov 23, 2007 at 12:49 | Source : Moneycontrol.com

Updated at Mon, Nov 26, 2007 at 11:46

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Mukesh Patel Sandeep Madan Sunil Khandwala give us a perspective on how HNIs are behaving amid such volatility and their future strategies.

Excerpts of CNBC-TV18's exclusive interview with Mukesh Patel, Sandeep Madan and Sunil Khandwala:

Q: How have you approached this volatility, and what are people like you feeling about the market now?

Madan: The way things are, there is definitely a universal problem where across the globe, developed markets seems to be going weak. We are getting the effects of that with all these sub prime issues, the housing issues and all. Based on that, markets in India also bound to get affected.

Now this decoupling issue that we hear you people talking about so much, how soon that comes into play and how affective that would be, time would prove that. But hopefully that should happen because money would try to find better pastures, better areas to come to. If this is where the development, the growth is, hopefully we should be getting our share of the flows, and increased flow coming in which eventually you should take the markets to higher levels in times to come.

Short-term it could be anywhere, medium-long term it should be good.

Q: What's the approach been for a HNI like you in the midcaps, particularly on the futures side?

Patel: At present I am not utilising, I leverage to the fullest and a bit conservative on F&O. But fundamentally the India story is intact and, even though there are people who are writing negative about the tech stocks, I still believe that companies like Infosys and TCS have great future. So at an appropriate price we are looking at buying those stocks.

The important thing about the market is that though in the last six months they have gone down, they have regained their position quite quickly. That made us believe that there are buyers at reasonable price. So we keep on taking our positions at regular intervals and check our position accordingly.

Q: What is you being doing with your cash levels lately though, there is been a big rally in the midcap space, are you largely invested or have you booked a lot of your profits and you are waiting for a better pricing?

Patel: We are balancing both the things, because as I told you, whenever they've gone down the markets have regained its momentum. But there are stock which have performed to the fullest, and it's time to go from one-section to another.

As we said we are not sticking to a particular sector, one has to be very clear about the investment decisions. And we being from real estate business, we know other businesses as well.

So we move from one stock to the other very quickly, that depends on how we judge their future.

Q: How have you approached the Reliance pack in the midst of all this volatility?

Khandelwala: I had very small quantity of RPL and RNRL , which I sold off. I also sold of Reliance lately and switched on to some other stocks because I felt that for the time being Reliance was quite high priced. But it's a great company and I will buy it again at a proper rate.

Q: What about IPOs, for HNIs IPO subscription applications and selling on allotment is a favorite game, is it still as profitable as it used to be?

Madan: IPO allotments and IPO applications for HNIs has become more of a sham right now. The over- subscription levels on the HNI sides have gone so high that the percentage of allotment that one gets on the allotment time, is so small that filling one's application through HNI route doesn't remain a very attractive option right now.

Looking at the situation, the way Sebi has handled it over the period of time, it seems that there is a major socialistic and imperialistic view that Sebi has towards the HNIs vis-�-vis the applications being filed by the QIBs and the retail. I have done a bit of research over last few IPO's that have been filed. If the numbers have to be compared, you would find that the returns that the HNIs are making vis-�-vis the retail and the QIBs are one-tenth of the other two categories vis-�-vis the HNIs.

If you look at these last two IPOs Mundra and Edelweiss, just to take the examples of these two, price the over subscription levels for the QIBs and HNIs have been very similar. Whereas for the retail, it's been less than one-tenth of that. Taking the situation where QIBs, are only supposed to put up one-tenth of the amount for the application, and it's only after allotment they pay the balance, at the time of allotment, we'll take the example of Edelweiss for now, the gray market premiums going around are closer to around Rs 820-830. This is going to be a 100% return on what you apply for. If the QIB over subscription and the HNI over subscription is closer to about 165-170 times, for simplistic reasons let's talk about an application of a crore of rupees, which is ten million, what you end up being allotted is closer to around Rs 60,000.

So for a QIB, on the amount that they are going to be putting up for that application is Rs 10 lakhs or a million, for one million they can take a return of Rs 60,000 on listing, which is 6%. For the retail, the over subscription itself has been 17-times. This would mean that all the retail that have filed applications for a lakh of rupees, which to be exact is Rs 99,000, for an Rs 99,000 application, the allotment should be closer to about Rs 7,000. So if there is a 100% on listing, they again go with about 7% return.

In turn the HNIs if they apply for the same amount, the allotment of Rs 60,000 against ten million would be a return and at listing again the 100% return against allotment it will be 0.6%. So there is no level playing field right now available for the HNIs, it's just getting very loopsided towards the QIBs.

If it has to be made, let there be a level playing field. It has to get restructured somehow that the HNIs do have an interest in filing on the applications for the new IPOs that are coming through. The very thought that HNIs end up selling on listing is not true, because everybody understands that there is a lot of good IPOs, good stocks, there is a lot that can be made if carried over a longer period of time.

So in that given situation, if HNIs also have a similar situation, I suppose it will be a much more interesting for them to be filing on the IPOs for now.

Q: One of the IPO's that closed was from the Real Estate Co; Kolte Patil but you are not very positive on that space?

Khandelwala: I am not interested in IPO's. I do my investment from the secondary market. But I recently put in some money in Mundra Port because I wanted to consolidate my position after listing.

Q: What other stocks have you bought in the recent months in your portfolio?

Khandelwala: Recently I have bought stocks like Finolex Cables , Madras Cements , IMP Powers and Sunil Hitech in the recent fall.

Q: What have you been buying into midcap universe?

Patel: We have invested in a company called Man Infra Construction, which is just hitting the market. I am clubbing your question on the primary market and sectors like real estate.

In the last six months there were enough returns or enough opportunities in primary market as well. Today one has to choose from them, but given the choice, I would prefer that you have good volumes if you have got good opportunity in the primary market.

Coming back to real estate, a company like Kolte Patil, I think real estate has just started and is in a premature stage. The profits, which come from real estate, take 2-3 years. I see great future because Indian economy is growing at 8-9% and the stock market or other growth is not less than 15-20%. So these stocks will definitely perform really well in future. But it take more time than the average stocks.

So we are buying in Sahara Housing, HDIL and as far as tech stocks are concerned, in Infosys and TCS .