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Markets quiet as question mark on clear-cut NDA victory: Pashupati Advani, Global Foray

Look at unleveraged or under-developed balance sheets, says Advani.

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Last Updated: May 08, 2019, 04.33 PM IST|Original: May 08, 2019, 04.33 PM IST
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If the NDA gets to 240-250. can they get over to 272? Normally the answer would be yes but stranger things have happened, said Pashupati Advani, Founder & Chairman, Global Foray, in an interview with ETNOW.

Edited excerpts:

You have just come back from the US. What is the mood on the street? Are we heading for a huge liquidity outflow from some of the emerging markets?

I am seeing severe protectionism in the US which is hurting the whole world, starting with China and then obviously the repercussions for everyone else. On the plus side, a lot of people are looking at shifting their manufacturing facilities and a lot of American businesses are looking at shifting their manufacturing facilities out of China and they are looking at India as a possible alternative. But they are also looking at places like Vietnam and Thailand which seem to be a lot more accommodating.

The good thing for us is that oil prices are now heading downwards again which is good because Trump in the White House likes to see oil lower but because he is trying to break the Middle East cartel. But despite that, this protectionism is not good for the world and how we deal with it is going to be really key to what goes forward. Right now, we are in election mode and are in a kind of limbo. We are not able to react one way or the other. We are just floating and I do not know how long we are going to be able to get away with floating because there is a lot of dynamic happening right now and we need to be part of it.

We are in the thick of earnings which are not all that great. There is that big overhang of elections as well. Are we looking at a 5% to 10% kind of decline?

For a long time, the pro-BJP people have said we are going to get 300 plus seats, may be even 350. The naysayers were saying less than 200. What is coming out of the so called non-poll polls is that NDA may not be able to get majority and that is why markets seems to have quietened down in the last couple of days, after the last round of UP elections. And that is making some of the more speculative FIIs take some money out of the table because they do not want to make such a big bet.

Earlier, FIIs were convinced that there were going to be a stable government. We are now looking at maybe horse trading going on for two, three, four weeks.

As I said we need to be taking trade decisions I mean not going to be able to take them if we are in political turmoil so it is just that where we are as of now given May 23rd and may be some time after is going to put some pressure on our economy.

What is the sense you are getting when it comes to domestic flows? That also much seems to be petring off like the FIIs?

Again people who are in SIPs, are suddenly looking at their balance sheets and saying we are not really making any money and when you start having doubts, then you have people saying hey! why I am doing this? Even if they would be in debt mutual funds, the debt mutual funds have also taken hits because of some of the bad things that they have bought. It is a tough space and it is really a question of where to put the money? Those who have money, do not know what to do with it and those who do not have it, are having to borrow it at higher rates. We are seeing what is happening in the NBFC space. It is hurting them all.

Earnings are not catching up and is that a further case for seeing a fall going forward, particularly post elections?

Big seems to be beautiful in this cycle so they are doing okay. The smaller companies are having terrific pulls because they are not able to make their business models work. You will see some consolidation but what is sad is that the SME, MSME sectors are really getting squeezed because they are not getting bank financing. The banks do not want to deal with them. The NBFCs that were giving them financing, do not have money and there are customers who are also suffering.

They are the small traders off the street and everybody seems to be postponing purchase decisions which is not good for any economy. I will say though this is a trend that is happening globally, it is not just in India. It is a revision of global values which are coming through because Europe is in terrible state, the US is talking about good employment but aside from the Silicon Valley, the rest of the US is floating along and in Midwest US, it is quite difficult. Of course, South America is in smithereens. So, this phenomenon is not restricted to India, it is a global phenomenon.

Have you been a selective buyer of late?

There are values but it is going to be longer term and they are going to be speculative. You have to be a stock picker to be able to do it but if you look at under-leveraged or unleveraged balance sheets. those are the ones to look at. But they will be tough to find.

Do you like cement in the past?

I like cement in the past but cement is another leverage industry. However, there is some stability in the sense that some projects are still getting done, some roads are still getting built and so cement offtake is still there, even though prices have inched up a little bit.

What about midcap pharma?

That needs a relook itself because of the fact that the US has been very very rough on all the inspections and things so those companies in the midcap that have been able to pass are going to do very well but then they have to make the capex to be able to make sure that they pass the inspections.

Let’s talk about the NBFC mess. Do you feel that worries have completely receded?

The challenge is that you keep having these black holes whether it is a Jet Airways or Rs 8,000 crore or whatever! You have seen a list every three-four days. The question is where is the money coming from to pay for this? So, obviously the banks have NPAs, they pull back money from the easiest place which is the NBFCs. The NBFCs are therefore facing mismatch and having to borrow money at huge premiums.

I do not see where the money is coming from. That is the challenge and even though people are optimistic about the banking space and the NBFC space. Long-term, it is a growth engine for India but short term. how much more consumer credit can we give?

Within the earning season, what has stood out for you?

Reliance has done very well even though it is off today. It is smashing through everything. All of its margins are doing better…

If it were to fall further, do you buy more?

Yes, that is something you have to be in because it is representative of India Inc. It is now touching B2C. It is in the B2B space. The refinery margins seem to be doing well and they seem to be knocking everyone dead in the telecom space. They are all moving fine and there seems to be some deleveraging also at the subsidiary level at Reliance which is good. Apart from that, obviously pharma stocks have come off the bottom and they are beginning to stabilise but still not there.

I am not particularly bullish on IT simply because I think the business model is changing. In the US, I saw a lot of stuff happening on AI and that is going to affect the way IT companies work in the future.

They are yet to catch up…

I do not know whether ours are able to move to that space that far.

They are definitely talking about digital and upping their game on that front.

They are trying, yes.

You had also spoken about interest say logistics, fertilisers. Are there any other pockets that you find interest in?

The domestic consumption story is a good one even though the public companies have actually given muted guidance. On the one hand, that is one issue and on the other hand, branded goods are getting into rural areas. That is a nice development.

So, that is a rather wide net. If you could narrow that..

But you need the logistics of getting there. Logistics are being able to provide the last mile and we have got a pretty strong and robust domestic market for most things. If you are able to ride on that, it is great. If we stop importing Chinese mobile phones, it will be a lot better.

What about the ones assembled in China?

Well what I am seeing is people are delaying purchase decision. That is going to help and oil prices going down are going to help also.

What are you expecting to see by the end of May -- stability or some surprises?

It is not going to be clean cut victory for NDA upfront. Hopefully, they will make the government because they will be the largest party but who knows, there is a lot of anti-Modi fervour from all the other parties. The question is, if the NDA gets to 240-250. can they get over to 272? Normally the answer would be yes but stranger things have happened.

ET Now: From a policy standpoint, do you feel that there is conviction in wanting the BJP back or is there still an open mind to that?

Pashupati Advani: I think there are certain pockets of the electorate that want them and there are certain pockets that do not. The challenge is we do not know what is going to happen. Given that Mayawati made a comment that I want to be Prime Minister, it means something has happened in UP that has gone against the BJP.

She according to me, is one of the most conservative politicians because she has had troubles in the past and she has been quiet throughout this campaign.

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