Rewind 1999: Damani, Suri, Samir Arora gauge mkt strength

Adding to the discussion, BSE member Ramesh Damani said it is unwise to call market at the top right now as there is some more steam left. He recommends buying interest rate cyclicals and is bullish on sectors like e-commerce, logistics and media.Below is verbatim transcript of the discussion:

Q: What is the advise as you wind back 15 years, what would have been the best advise you gave investors then and what would you give them now?

Damani: India is a land of opportunity. Sometimes you tend to be cynical about it but if we look back at my own career, starting at 1989 when index was 800, today when it is closer to 30,000, it has gone off 40 times in a period of 25 years.

In the 15 years that you have been present, the index has gone up 6 times. So investment is a long-term process and if you try to write-off the peaks and the values, you will do alright because the Sensex itself is compounding at about 15-16 percent year-on-year (Y-o-Y).

It may not be every year but over a period of time the average is 16 percent. Look at Indian equities, India is a great place right now to build businesses, to create industry and the market is rewarding that. Q: Fifteen years then and now, how does it feel?

Arora: I have started in May 1995, so I have seen the entire history. We were also the only firm allottees in the CNBC IPO in 2000. But in the last 15 years the Nifty index in dollar terms has outperformed Berkshire Hathway. So for an individual who reads about Warren Buffett and wants to copy him, just having invested in the market would have beaten Berkshire since 1998-1999.

Q: For new generation, for first time investors, this still gets a bit skeptical after the 35 percent rally. We watch CNBC-TV18 everyday and we say oh, it has gone down, it has gone up so much and you start getting worried. So with the Nifty at 8,550, would you recommend to start a systematic investment plan (SIP) even today?

Suri: I think this is a strong case for it. In my journey in 15 years, I use technicals, I use different mediums of analysing markets and we see a lot of technicals.

We see daily in-out, no criticism of that but it has been my experience and it has come through a lot of pain and a lot of study and a long journey that you make money with the larger trends. This comes down to the earlier point that Samir Arora and Ramesh Damani made that if you had played the larger trends, whether you use technicals or fundamentals, that was the way to make money.

We get very focused on intraday movements and short-term movements. So when you see long journeys of these long returns, the problem is that the volatility in between very often when markets dip, markets fail, everyone gets nervous and people generally sell out of the bottom.

If one had looked at longer trends, one had stayed longer, this is definitely the most enriching way you can make money in the financial markets. You have to stomach the volatility and only way to stomach the volatility is to look at longer trends or be invested for longer terms.Q: The market has dipped a bit but now back in flat terrain and the advance declines have been almost two stocks in the green for one in the red, what is your sense for the short-term? We did see some bit of FII selling, quite a few promoters sold today, it is not just Infosys which is the big news but smaller stocks, Jubilant, Reliance Capital sold a bit in Inox as well Thangamayil’s promoters were selling, are you getting a sense that for the moment this correction away from the 8,630 mark could prolong for a bit?

Suri: Even if it does, you may have a 2 percent or 3 percent correction, I feel it is a buy on dip market because I still hold the thesis that I have been saying for the last 10 months or a year that I see the Nifty - it is again a technical view - at 10,460.

I have been saying this since a year and I still think that there is a 20-22 percent gain and this is going to come in the next six-nine months.

Q: Is there a date for this 10,000?

Suri: Yes, it is mid-2015. So I would give it a six-nine months kind of a phase. I think there is a lot of money to be made whether it is through SIP or if the market corrects, it is an opportunity because you look at the changing environment, you look at the mood that is changing domestically, people were redeeming domestic mutual funds. But you do see SIPs coming, you do see people who are HNIs, who put property investments, which you have been very good on the block and are looking to move that into equity.

Look at what is happening globally, look at global markets, look what is happening to the currencies, you look what is happening to the commodities, so I think there is a lot happening in the last three months or so which makes the case for India much stronger.

Crude, currency, inflation, your domestic bond yields are pointing to something else and that is why this target would have looked crazy ten months ago, looks optimist today, will look pessimist six months from now.

Q: What is your call? Do you think that for the next six months there is still a lot of money to be made?

Arora: Not for only next six months but for the next numbers of years money will be made because although it is true that the government progress in terms of announcement is happening but not really many people are seeing things on the ground.

However, these things invariably happen with time if all the building blocks are in place but the biggest event is the decline in oil prices, which is independent of the government and in some sense is as big as the government's coming into power or BJP coming into power or Modi coming into power.

If Modi had not come to power and Congress was in place, but oil prices had been as low as they are today, you would still have had maybe 20 percent rally in the markets till now instead of the 35 percent. So, today to focus on only one is not enough. Luck has played a big part but that is part and parcel of the package because different individual have different luck.

When I used to interview analyst in the past I always used to ask them whether they are lucky or not that is part of the package. Today, the oil is very massive thing and it is true that this Parliament session is a white-wash but if it had been very good but oil had been USD 100/bbl, it would not have made as big a difference.

So look at it in a holistic sense that it is India’s time and many people say that this is luck. I tweeted on this a few weeks ago that Middle East was looking for water and they found oil but 5-20 years, 100 years later it is considered part and parcel of their birth right that they should have high oil prices and they can go to 5th Avenue and say we like this building where an Indian says can I buy this DVD.

Luck is part and parcel and maybe it is our time right now even if it is short-term but it is very big and it is nearly as big as what the government can do or has done so far.Reema: Given the mood - the decline in crude prices, global markets what will be an appropriate price to earnings (PE) multiple that India can trade at according to you?Damani: Unfortunately I never look at this kind of stuff because the Sensex itself is comprised of multiple companies. Great companies will always trade at premium to the market and they will continue to trade premium to the market. I am not in too much into this macro stuff so I will pass that question.Latha: 10,460 in the next six months or mid 2015, seven months at best what will be the leaders of this rally?Suri: If you look at the market I feel the biggest trend that is been playing out sectorally if that is the question has been pharma. Pharma has been, if you look at some of the charts of these larger pharma companies it’s been a three-five year bull market and multibaggers. The beauty is that as I said the volatility is what kills it has been a very low volatility sector. It is not about absolute returns, it is about the trend and the less volatile trend that is what helps an investor or a trader to stay in the trade and compound. In the medium-term the sector that has been interesting and I still think because historically I found is an automobile.Autos and specially ancillaries it is much larger than just the index has been beautiful and there has been a lot of money being made. However, the surprise the trade for 2015 is what is going to happen for bond yields. Bond yields which are at sub 8 percent at the moment will head to run 7.2 percent again that is the chart reading I am not a specialist in debt market but it is pure chart reading. People may say it is going to take a year I think it takes six to nine months. This is going to have a very big kicker on public sector undertaking (PSU) banks.It is lovely to be in a space where people are short or people are bearish, under weight and with bond yields the way they are going to fall you are going to have a very big move in PSU banks. This is going to the surprise trade of 2015 and always the unloved or the unlike space is where the surprise is happen. So, we are in for a positive surprise and if PSU banks move you have your Bank Nifty which has a knocked on effect on the Nifty this will be a space that will surprise.

_PAGEBREAK_Latha: How would you react to bond yields just as a fixed income instrument and I know you will play way second to equities but how would you play this trend itself. Would you play PSUs; would you play non banking financial companies (NBFCs)?Damani: It is a smart trade I agree with him. Ethiopia launched bond fund at 6.5 percent so to me it is ridiculous that India’s interest rates are so high. There is enormous pressure on Reserve Bank of India (RBI) to reduce it, beginning in February. So, it is going down it is smart trade.Falling interest rates are like gravity on the stock market. It propels the index much higher so you buy the interest rates sensitive the cyclicals to participate from that. That is part of the reason - globally they are trying to move up interest rates inflation and India was trying to bring it down. So, it has hugely positive impact for us.Latha: Samir you want to come in on this interest rate discussion. Atul was calling for 7.2 percent on the bond on the tenure. Do you play that trade if yes how?Arora: We don’t change our preference for sector so in that sense it broadly helps us anyways because we are very big in NFBCs and even in private sectors banks. However specifically for this will I buy a state owned bank, no I will not buy. Will I buy a property - I will actually short even then just like I even now short internet. So, some of these things are good for the country and if it helps the country it helps me.The good thing about being a hedge fund is that you want high returns but you don’t have to every day beat the index. Anything which helps the country helps me I do not mind whether I myself own that stock or that sector or not. If it helps the country it helps me because the visibility of India goes up, investors want to invest and then we can show our history and things like that.  However every trade doesn’t have to be played by everybody. So some things which we have not believed in for many years we will not believe in it only because interest rates are lower except that it will help everybody and we also have and everybody has directly or indirectly many stocks which would benefit from all that positive trend which helps the market or economy. There is no need to specifically play for this other than if you already like some of these themes which we do in the case of NBFCs.Reema: Infosys is down 3 percent, what did you make of the recent corporate development where the founding family is looking to pare down their stake?Arora: The good thing is that everybody in this world wants to be a fund manager. Every businessman's son doesn't want to do the same business and they want to be private equity fund managers and they want to invest in unlisted companies and we are very fortunate that we are already doing that without having any inheritance from anybody. But in general I would think that philosophically not about the selling but the process - it is a big negative that this deal is announced at 4 in the morning Singapore or India time and is closed at 8am India time, which means not a single market in the world is open, not a single fund manager is in place and the deal is close, which means the deal has been pre-sold.Now if you look at it, in the last five-seven days since the bonus of Infosys, Infosys has been very weak. So I think it is a fit case for investigation because the actual deal was open at the time when each and every stock market in the world was closed - not US, not Europe because it was announced officially at 4-5 am in the morning today and closed at 8am India time when not a single market was open except maybe for an hour Hong Kong was open. So it is philosophical negative but otherwise we own Infosys and we are not being negatively disturbed by this that the promoters are selling because they all want to be what we already are which is fund managers.Latha: But that would be a negative, isn't it? If they did it for philanthropy, it won't be negative but if they were to be fund managers then at least the street take it pretty negatively that they are thinking of churning out?Arora: That is what I am saying, it is negative for the day because they have done it at discount and they have done it without announcement and some people has inside news and whether they reacted on to it, I am not saying. However, what I am saying is that because they have given up on the thing and moved on and give it to professional companies, it is like their view versus ours, it is no big deal and it is not that in the past when the promoters have sold, it has automatically become negative because if all the promoters know what was happening to their market and then the company then insiders would have always made more money in this kind of thing, I am not talking of insider information but generally buying and selling or when a company buys back stock. IBM has been buying back stock, the stock has been moved so what I mean is just because the company does a buyback or effectively promoter does a buyback or a sell down, it matters for a few days but it is not the end of the world.Latha: In your experience after a market rises 35 percent is it very common for it to be able to put on another 25 percent in the subsequent year? Arora: Of course, every time it has happened in 2003, 2004, 2005, 2006, 2007 and 2008 it was nearly like that every year. In 1998 and 1999 it was like that generally because there are cycles so if you look at it 1991 was the peak then 1999 and then 2007 by that logic in 2015 whatever you will have it but in general it is a cycle and the cycle don’t last for one year.Also we have to put it in context that the previous three four years were pretty bad at least in dollar denominated terms. So, in a sense it is correction from a very deep over pessimistic level of the market because last year if you now till September the negative that we thought for our market or the world thought for us have not turned out to be true. That currency will go to 90 then India will need emergency loan, that they will ask for some excess credit from Japan and things like that and I myself sold a Put at 90 rupees to the dollar and earned two percent on it. Then somebody was thinking go to 92 in one year. So if those things don’t turn out to be true and that gets reversed you can not call that a rally it is just a correction from a correction. It is on a good level but it doesn’t mean that it has ended because the actual economic factors which is lower inflation, bottoming up of the economy and turning up, the orders becoming businesses all that has to happen, now it is happening. Latha: Have you seen many years when 35 percent can be topped up with another 35 percent? Damani: It has, if you go back in the history whether it is in the dough or as Samir correctly pointed out various examples in India markets do not follow a linear pattern that only 8 percent a year. They come and burst in spurts and that is precisely the timing you don’t try to time the market but your time in the market is more important. So, that is fine I can live with these kinds of gains back to back. There is no sense of froth here. What we have to look out when the bull market top out is a sense of froth. In the public, in the galleries, in the café, in the press the panwala everyone is talking about stocks and very poor quality names or the big listed companies so far is the minimal dilution of equity. We had a good wicket there will be froth from time to time and individual sector and stocks. They will correct and the market will move on. So, to try and call the market top at this point is perhaps not the wisest thing because we have to watch the market to give us the sign that it is stopping out rather than we preempting it because the market is gone up 30 percent or 35 percent.

Latha: Aakash Prakash, the Amansa Capital fund manager, in the Business Standard saying that the only point of worry is that global emerging market (GEM) funds are seriously overweight India going by their exposure to other emerging market countries, is that a worry?Damani: One data point doesn’t worry me. What has always worked, whether it is in 1992, 2000, 2008 top has always been the sense of froth that you see. Public absolutely blind about stocks, very poor quality stocks leading the advance, absolutely nonsensical headlines in the press, none of which are present today. Mutual fund is just beginning to attract some money. I am sure we will look at all the data points but nothing technically suggests to me that we are near the top at this point.Reema: Give us a few midcap gems for the next few years - what stocks would you recommend?Damani: I love discussing stocks but there is some new SEBI guidelines out for analysts, which prevent us from discussing stocks unless we are registered with SEBI and I am not.Latha: You get six months to register.Damani: I know but those deadlines are like throwing the baby out of the bath water.One theme that seems to be playing out broadly in India’s e-commerce theme and it has played out in the logistics sector, it has played out a little bit in the media sector but the convergence theme within that e-commerce when you just look hard for those kind of plays, come over some surprising answers. So e-commerce is a big theme, will resonate through this bull market, the market is just getting warmed up with that idea. We have seen great moves in logistic stocks, some moves in media stocks, some moves in packaging stocks but there will be other ways to play it and one other thing to play it is perhaps the convergence theme -digital data, net, shopping, those kind of themes. Latha: If the Nifty is at 10,460, where is the midcap index, is it an outperformer so is it more than 15,000 depending on which index you look at and again leaders?Suri: If you look at the CNX midcap index, you find that something very interesting has happened - whereas the Nifty has broken into lifetime highs at more than 6,500 plus or thereabouts, which has been many months ago. What you have seen is the CNX Midcap index has broken out into lifetime highs very recently. So I feel that there is a very large catch up. When I do projections of targets, I think that we could see about 40 percent move in the midcap space when we see about 20-22 percent move in the Nifty per se. You can get some numbers on it but more important is that you will see outperformance to the factor of two in the midcap space. That is very interesting and that has always been the case. It is nothing new.Yes, over the end, you do see froth, you do see excesses and as Ramesh Damani pointed out, I also love to see what people around me are talking, what is the social mood and at the moment there is no talk about equity.Latha: The very fact that we keep asking you about this wall of worry, is it topped out, is it topped out I guess is an indication?Suri: I have friends in mutual funds and they say serious money is coming but clients are coming in through SIPs. Even they are cautious, even they are expecting corrections and I think till people are cautious it is fine. The problem is when people used to leverage to get into mutual funds and things like that, when everyone, every NFOs are there everyday, it is nowhere there and we are very far from that.Reema: Atul Suri has given us a level of 10,460 on the Nifty in the next six-seven months. Give us a forecast, where would the Nifty be in the next 12 months?Arora: I am not forecasting the 35 percent which Latha asked but for me it doesn’t matter as long as it goes up 15 percent, I will be as bullish as I will be if it is 30 percent because at 15 percent I will be maximum bullish so if you say, 30, I will have no capacity left in terms of an actual action. 15 percent dollar terms compounded for a number of years is a dream on which we can raise billions of dollars which will keep us all very happy. So we are only looking for what is the minimum that we can make or hope to make, it sometimes it doesn’t even happen like that although over times even if there are dips in between, it ends up being like that over some 7-8-10 year period. However, there is no need, it should not make anybody more bullish, and they should be as bullish if they can see clearly a 15 percent type of move. Thing above that is good and we will take it with both hands but there will be no action that I could take differently if it is 35 percent instead of 15 percent. Action will be only different if you say it is zero or minus 15.

_PAGEBREAK_Latha: What is your sense about the stocks that you are holding?Arora: I would just say that these disclosures rules, I don’t think anybody ever reads them. They just say that they are disclosure rules, particularly the mutual fund managers who come on your channel. The rule says that tell that this is what you own and then don’t trade against it for one or two months or maybe for the rest of your life but it doesn’t say don’t talk about a stock. I saw Ridham Desai that day saying disclosure rules, their reports are sent out to the whole world to all the channels. So why shouldn’t they be told to the people who are watching on the TV.The only thing which SEBI says is that disclose before or after you own this in your portfolio or personally and that for at least some x number of days 20, 30 whatever you can justify to yourself don’t go and sell it if you have recommended a buy and don’t buy it if you have recommended a sell or something like that. That is all that the disclosure rule says.So, for me it has come out in books that I own HDFC Bank for 20 years. I don’t answer this question but let me change the question for you, you said that Akash Prakash said that the GEMs might be overweight and therefore in a sense there won’t be any buying that can come from them. Best is to look at specific examples, in HDFC Bank for one year there have been no excess buying because it has been not open to foreign investors for more than a year, from November last year. Still the stock is up some 45-50 percent.So a stock where no foreigner could buy and in fact they had to sell, still the stock has gone up 45 percent. So when a market does well, you may a little bit underperform – like it under performed the other private sector banks but this will not stop India. State Bank of India (SBI) from 1996 to 2000 something was always at a foreign ownership limit and although we don’t own PSU banks and all that but SBI did quite well. Then for nearly 6-7 years there was no foreigner who could buy, it was at a foreign ownership limit consecutively for more than 5-7 years, it still did quite well.Latha: Do you think global funds as yet have not really discovered their India movement, so there is money to come over there?Arora: Absolutely, actually I have always been saying that the MSCI index is structurally flawed and it under represents India’s weight in indices because of the free float factor but a global fund and all who were quite happy to pay a 5-7 percent premium to buy HDFC Bank because for him it is available if you just pay a 5 or 7 percent premium. They will not be bothered so much that there is a foreign ownership limit nod as long as you can buy it either in ADR or a 5 percent premium or whatever.So the interest in India will not be governed by MSCI weight for anybody other than literally following the MSCI which maybe some or 80 percent of the GEM funds but the rest of the world which is coming in opportunistically anyway, for them anyway India may not be in their index but they still want to buy it because it has either good companies or is doing well. So all that is still open and in that context or that market India is very underrepresented because of not having had visibility from both a top down and from a bottom up there have not been many large companies before but now there are quite a few which even the global guys can buy and forget about maybe 0.5 percent or one percent of their portfolio, that will do them good.Latha: You always give us an idea of where your heart is when you tell us how your neck long or how neck short you are totally at this point in time?Arora: I was thinking that another channel had celebrated its 21st anniversary and they had to call all the three Khans from Bombay and for your anniversary you have called us three Mr Ramesh Damani, Atul Suri and me, so not a bad deal.Latha: What stocks would you shout from rooftops at this point in time?Arora: As I said my stocks have not changed for many years. We have the same high weightage in private sector banks. Now we have bought a larger stake in ING-Kotak as the new, we have owned both of them before but now we have added to it and generally we feel that owners of ING i.e. the shareholders of ING may demand a higher premium from Kotak. So, that also is there but even if that does not happen because the larger guys have to do it, the ChrysCapital and Fidelty whoever owns it but I would think logically that they will not let this deal happen at the current price but even if it gets at the current prices it is a good deal. So, we are bullish on this merger and we owned both of them before but we have added, buy ING.Latha: The midcap, what could be the leaders - where are the breaking out charts?Suri: Our markets are definitely driven by FII flows and global liquidity and there is this lot of concern that happens when the QE tap would shut what would happen and you will see what happened to Japan. It really picked up the baton and the next three-six months or one year what is going to happen is going to be in Europe. I have a feeling that they are going to pick up the baton from Japan and what is going to happen is what you are seeing with the DXY - it is just doesn’t have any resistance. It is just kind of spiking up and the next big thing just as the Yen has depreciated is what you are going to see in the Europe. When I look at the charts of European markets they have been underperforming but as I explained earlier that you look at the charts of Germany; the DAX, about three months ago they were at lifetime highs, it cracked 20-30 percent to 52 week lows and in a month it is again back to lifetime highs.So the kind of strength that you are seeing in European equity markets, coupled with the weakness that you will see in the Euro in the next six months or so very interesting stuff will happen in Europe. So the baton or this free flow of money that is happening will not cease and as FIIs have been drivers of our equity markets, it will continue to be so. The source may change and that is what makes me so bullish or set out these targets.Latha: A word more on gold and oil, more bearishness?Suri: I think so, in the short-term you may have pullbacks because they are very heavily oversold but what is important and for us really is what is happening with crude and it is not just going to be a case of crude which showed as a level and went back but more important is where crude will stay because if crude stays at these levels for a longer period of time that is when India’s balance sheet will get materially affected and that is more important.As I said it is not a level 65 or 60 per barrel. You may see a one day blip and be happy but for India it is more important that it sustains around this place and I see that happening. That is going to be the big thing that has happened and will happen.