'May head lower over 2-3 months; long-term bull mkt intact'

A: Obviously the market is having a lot of tensions right now because there is a lot of bad press coming to us outside of India. We have seen articles from market doyens like Jim Rogers saying that I liked India, I bought India for the first time a year ago and now I am getting disillusioned and that is the kind of mantra that seems to be sort of permeating all over the western world at least. It is affecting our markets because we are seeing negative figures every day. So that is obviously hurting the market.

Sonia: Are you selling now or are you looking at this as an opportunity to add more positions?

A: Right now it is not the opportunity to add more because the market is too volatile and it is better to say that if it comes back to the old levels you buy again or if it goes down further to buy again. We are in kind of wait and watch mode. What I have seen this year is that whenever there has been any kind of burst upwards there has been a slug of new issues or FPOs or new paper that is coming in the market and a lot of that is still not absorbed.

I have always been a believer that our market is a supply and demand market and right now there is a lot more supply. So, this supply started in March and is still overhanging in April and we haven’t got the allocations that we thought we would get in this quarter. So it is taking time for it to be absorbed.

Anuj: A lot of bulls have been spoilt by the fact that in this bull market, we haven’t had any correction. In the last bull market we had four or five instances of at least 15 percent correction and there were two instances of even 30 percent correction. Would you say that something similar could happen this time around, maybe it may not stop at 10 percent, maybe the market completes a 20 percent correction because clearly earnings are not catching up?

A: No. That is also true but I will say one thing to you that in the past we used to have jerky corrections. So you would get 15 or 20 percent in one day and the systems would go haywire. Now what would happen is you may get 20 percent but it will be slow over a period of a month to three month. It will be slowly coming out of the market and because the whole tone of the market has changed. There is slightly broader participation, both domestically and internationally and that is helping the stability.

Anuj: In terms of individual stocks or sectors is there anything that has entered the value zone now after the kind of fall that we have seen?

A: It is a time to have a relook at – I know that the banking index has been hammered. It is a time to relook at midcap banks particularly because that the acquisition targets for the larger banks as well as any new entrant that once…

Anuj: [Interrupts] Even the private ones, the midcap private sector?

A: Even the midcap government ones. Those also could be up for consolidation and their valuations would be more towards improving the smaller shareholders than the bigger shareholder. So that is one thing.

Secondly there is opportunity in the infrastructure base but again the infrastructure spending has slowed down again because there is not really anything happening. I have been bullish on cement, I have been bullish on steel, both of which have got hit because of the fact that the projects actually aren’t moving.

Sonia: What will you do with a space like IT specifically Infosys post its numbers because ever since the stock fell about six percent on Friday we have been getting a lot of queries as to what retail investors should be doing now. Is this a good time to add?

A: The IT sector has been under some pressure it has not actually been able to move and compete because generally globally companies are moving up the value chain and are going into consulting space and the Indian companies have been slower to adopt that. They have bought small companies in the space and they are competing now with Accentures and to an extent Cognizant is in the space already. So, that is going to have a sort of lag effect and that is actually pulling the sector down.

The other thing is a general thing which is that with this new CSR bill coming certain portion of earnings is going to be put aside and when you multiple by the high multiples of IT companies that's obviously going to have some effect in the prices and that is something that will also we will see over this next one year or so.

Sonia: What advice would you give a retail investor who has entered rather late into this bull run like they generally do. Is this a time to be sort of taking out some money off the table or do you think that there is still a lot of returns to be made in the next couple of years?

A: I feel that there is return to be made. If you are a sensible retail investor you should continue to invest on a slow space -- leaving yourself powder to buy at lower level. However I don't think you should lose the opportunity because I think that this is one of the few countries in the world where there is actually growth happening.

At least the foreigners perceive there is growth and then the numbers are showing that we are at 7.5-8.5 percent, which are great numbers. So, even if we come up 6.5-7 that is still a great number compared to the rest of the world. So it is a place to invest and our retail should take benefit of it. There are also some incentives whether it is through investment schemes and ELSS and all these other schemes that you can do and just I would say we need to get more people into the market.

Anuj: From here on incrementally what is the biggest risk? Is it more earnings downgrade, is it monsoon, is it this whole FII taxation what is the biggest one?

A: I personally feel that the biggest risk to us is currency. You haven't mentioned but there has been a couple of reports even suggesting that we are going to touch 70 again. That 10-12 percent has already moved up from 62-63 plus over the last 2-3 days. And if we do get a shock like that that hurts us very much. Because it hurts us in our imports, we are still net importers; we have a deficit of a month. Oil will cost us more in rupee terms and a lot of that will not be able to be passed on to the consumer. Then the results of the companies will hurt.

Sonia: So, in terms of specific sectors we spoke about technology sectors, we spoke about pharmaceuticals, but anything else that looks like it could be a good buying opportunity for the longer run, you have mentioned banks as well?

A: Yes, I mentioned banks because that is where you are going to get the highest beta in banks, but I am actually not so comfortable with FMCG any more simply because their rural off take is not what people are promising it to be but pharmaceuticals definitely. Healthcare is another area where certainly more money is getting spent.

Sonia: So you will buy Sun Pharma after the 10 percent dip that we saw?

A: Yes, I think so. It is still growing and it is still a great company, but also as you all know it is getting more expensive to go to hospitals, so why not buy into hospital chains. Very few of them are out there, so that is why they are trading at very high PEs, but more and more are going to get listed as the PE funds come to market. Again more supply but those are going to be the opportunities that we need to take.