We might not necessarily see big bang or reforms, but my sense is that it is an event to watch out for, Ashish Somaiya MD & CEO, Motilal Oswal AMC, said in an exclusive interview with Moneycontrol’s Kshitij Anand.
Will the Modi government stick to a reformist budget or will it be a populist one considering it will be the last full Budget from the government before general elections 2019?
This is the last full-fledged Budget of the Modi government because the next one will be a vote-on-account in my understanding. We might not necessarily see big bang reforms, but my sense is that it is an event to watch out for.
People are worried about it being populist, people are worried about the fiscal deficit. If you are in the bond markets, you should really worry about it, but from the stock market perspective, heading into an election year, and probably the last Budget -- my sense is that it will be positive for the markets. In the run-up to it, it will be positive; that is my sense.
Just a quick question on the elections. While interacting with your clients have you got a sense that the political equity has reduced or there is a sense that the reforms are good?
I think that people are consistently being surprised and I will tell you why – when demonetisation was announced, people were fearful that it will hit employment generation and industrial activity.
People were worried that demonetisation was a bad move. However, when the data eventually came out, the results were opposite. We saw the same thing with GST or the Goods & Services Tax (GST).
If you see, yes one quarter was a washout, and then if you see September quarter numbers, you will see that numbers from white goods, consumer, and auto actually surprised markets.
Hindustan Unilever (HUL) showing 16 or 14 percent volume growth, sales growth, forget the margins and profit. Another company, Voltas in the white goods space also came out with good numbers. Even the whole PSU bank recapitalization came as a surprise.
My sense is that a lot of market commentators have consistently been slightly off the mark as far as what the government is doing and what the fallouts are. If you really ask me, I am from the camp which believes that there is something transformational happening.
We are getting a lot of domestic flows but foreign institutional investors (FIIs) have taken a step back at least in terms of the secondary market, but they are buyers in the IPO and the bond markets. So, there is euphoria in the domestic side. Do you see that also ebbing probably in 2018?
Last two calendar years of return is not a good indicator of future returns. Why I say that is because every time at the end of the year there has been an accident which propelled the market next year.
If you see the end of 2015, mid-2015 the RBI came with the asset quality review, then Chinese devaluation, and commodity price crash. If you see February 2016, we were at 6700 Nifty all the way down -- big crack.
Then the market started recovering, so, the calendar year 2016 looked good because you opened with that whole China commodity and asset quality review and so many things. So, 2016 calendar year might have looked okay.
2017 you announced demonetisation and January the market started recovering so the calendar year might look okay. That is just my two bits of the calendar year returns because they all started with a surprise base and this next calendar year will not have any such thing it will start.
Why I am clarifying this because the mid-2015 index was 8,900, it fell to 6,700. Again it went to 8,900, it felt to 7,700 -- both the calendar years looked good.
This year, the base is 10,300-10,400. I don't see it cracking like in a very big way. To say that, in the next calendar year we could see a 26 percent index return, maybe not.
Now coming to the flows, if you really ask me, anybody who is serious or anybody who interacts with investors knows one thing for sure that if there is a big crack in the market, money will come.
I have seen the following sequence of events play out; let us say we are at 10,300 Nifty, and for some reason if it fell and becomes 9,400-9,500 or like a reasonable 8-10 percent fall.
What happens is when you get a big crack in the market all the way down, the first thing that happens is you get more money because there is always money on the sidelines.
They are SIP flows or like big chunks of money?
You will actually see chunks of money coming in because what happens is that typically when the market is at this level you see a lot of money lying in dynamics funds, balanced funds.
It is left in liquid funds to be switched in so many things. What happens is that when the market is at a perceived elevated level and you get a crack in the market, the first reaction of people is to jump in.
From thereon if it bounces back, then it is fine. However, if it cracks further, let us say that 10 percent correction becomes 15 to 20 percent correction, then people get a bit scared or cautious.
After that fall, if it recovers again, then you will get redemptions. Because, what happens when people put Rs100, it becomes Rs 80; you show them 100 back, the first reaction is okay let us get out.
If you get a correction at this level, first you will get a lot of money. If the correction persists, people become nervous, and then when the market bounces back, you will actually get redemptions. This is the sequence I have seen at least three-four times.
How are SIP flows looking?
For SIPs, if there is a crack in the market then Rs 6,000 per month can become Rs 5,000 per month; I don't think so. Definitely, some people will get demoralised or dissuaded and some SIPs will get canceled and instead of Rs 6,000 crore flow you might get Rs 5,700 or 5,800.
Some people might even stop doing it, cancel some SIPs. Some people might get worried and do redemptions. So,
So what I explained to you first, that sequence of events, that is more to do with the lump sum. As far as SIPs are concerned, every month we are registering the equivalent of Rs 200 crore input new every month.
So, Rs 6,000 becomes Rs 6,200, 6,400 like that. Now, if there is a big crack in the market, inflows from SIPs might slow down a little bit or some cancellations, but it doesn't fall off.
Coming to the growth part, September quarter was not that bad. Do you think that January or March quarter could bring some good news?
My sense is whatever I can understand, we would have turned the corner; that is my sense. We have already turned the corner, so, my sense is that progressively you will see improvement; that is what I think.
So earnings growth are not far away that is what we can say?
My sense is that we are already seeing it in some sectors. Like you rightly said, they were not that bad. I mean there were certain places where there was a positive surprise and if you see the chances you will see more -- I mean the upgrade downgrade also you will see that changing. So, I think we have turned the corner.
We saw a huge gain in bitcoin and I am not too sure whether you even go ahead with it.
I don't track it and I don't understand too much about it. So nothing really that I can add. The only thing which I can imagine is that most people don't understand the basis of it. The influence or the reach is much more than what we imagine.
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