Rupee @ 60 will renew FII skepticism: ChrysCapital

Gulpreet Kohli, MD, ChrysCapital believes the fund inflows from foreign institutional investors (FIIs) have been very selective. Now that the rupee has touched the 60 per dollar mark again on Wednesday, he senses a renewal of skepticism among the FII community. This at a time when the Fed is talking about QE pullout, which anyway as dented sentiment in India, he said.

He told CNBC-TV18 that he is not happy with the pace of reform in India and some positive action from the government is required to aid the sentiment. Also read: Rupee won't breach 60.25/$; see no RBI intervention: DBS Q: First do you sense any big change in terms of the investment environment into India because of what happened with Quantitative Easing (QE) and the fears on outflows coming out from that? A: We are still seeing skepticism about money coming into India. The view is that it is only going to be on a selective basis in very high quality companies and high quality sectors. So, on an overall basis a lot of the foreign institutional investors like India but are keeping their money in the pockets right now and are saying from a short to medium term perspective they are on a wait and watch. From a long-term perspective most people actually like India. It is not that people are saying we don't want to look at India, but in the short-term I think a lot of those investors are very worried about what has been happening in the country and that is why we have seen a lot of volatility even around money flows into India in the last couple of months. Q: How much of a stumbling block is the currency in that regard and how much of a determinant do you think it is going to be on whether or not the money chooses to come back? A: It is a huge problem right now for most funds especially private equity space that ChrysCapital operates in. If you have a currency devaluation of 10 percent each year you have pretty much wiped out all the returns that you have made. Most foreign investors who have been long on India have actually made very little money in the last five-six years. So, the currency has played an important role and is now even playing a bigger role as people think about investing in India. Q: Given that backdrop would you say that in the medium term we have probably set up for a much tighter capital availability environment both for the secondary market as reflected by the stock market as also for the universe that you guys track? A: If you see the universe the capital has been tight but the private equity space actually capital flow has increased. Obviously there are a couple of outliers like Bharti Airtel deal. However, if you even ignore that for the last whole year USD 7 billion came into the market for private equity. In the first five months USD 5 billion has already come in and more than half of that has gone into listed equities. So, for high quality companies you are still seeing capital come in but you are absolutely right on the capital market side. On IPO on follow on offerings the market still continues to be very selective and the capital continues to be scarce. That is why you have seen pretty much the IPO market or the follow on offering market being very selective. Investors are very cautious and making sure that they are investing money with a lot of caution. It has been on a very selective basis, but money still continues to come in. So, I don't want to give a signal saying there is no money coming in because you have seen increase in flows at least in the private equity space in the first four-five months. Q: You guys did pick up small stake in a private bank. That is one of the holy cows coming up for question over the course of the next few months. Are you guys getting a little worried about the banking environment and where that could be headed and the fact that it may not be as such of a strong performer as it has been for couple of years now? A: Chryscapital have always been very bullish on the financial services sector. Our view is we have to wait and watch how policy gets framed on the new banks. We have all seen people who want license they all have applied. It is a large number of people. I think there is going to be a lot of uncertainty around that. The second thing that we have to look through is the NPAs. A lot of seasoning has happened, now we have to see what flows through some of this because we all know there are lots of troubled sectors but the write-off has not been taken. So, we are being cautious but financials for us has always been a very attractive sector and we continue to do that. From an overall market perspective there are a billion dollars that have gone into financials this year. If you take out the Kotak-GIC deal half of that money has gone into the consumer finance space because the Kotak Mahindra Bank is showing a large number. However, if you exclude that a large number of dollars have gone into the consumer finance space. Q: Let me ask you about one of the troubled sectors in which you guys hold quite a bit by virtue of Nagarjuna Construction, Gammon Infrastructure Projects, Pratibha Industries, something is happening with the CCI but evidently not fast enough. Are you still holding out for that entire space or are you getting a bit frustrated with the pace at which any kind of reform or impetus is moving? A: Everybody is frustrated with the pace of reforms but there are companies who have started to see flows come back. It has been a trickle but at least you are seeing some improvement happen. We are long-term investors, our average holding is five-six years. So, we continue to hold these sectors, we have done very well in these sectors three-four years ago. I understand that changes have happened but I think the government is now easing out. However, a lot needs to happen both from a government easing out perspective but also from an interest rate regime perspective because cost of borrowing for a lot of these companies is at an all time high. Until and unless you have interest rate soften, some of the debt issues will continue to be there. Our view is still a long-term hold on these sectors.