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Only continuous flow of money can prop up the market: Pashupati Advani

We are at an almost all-time high and therefore everybody is being cautious.

ET Now|
Last Updated: Jul 17, 2019, 02.01 PM IST|Original: Jul 17, 2019, 02.01 PM IST
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The challenge is that I believe SIP is slowing down a little bit and for FIIs, the Budget has caused difficulty in terms of how they treat income on F&O. That is a challenge we are facing, says Pashupati Advani, founder & chairman, pashupatiadvani@globalforay. Excerpts from an interview with ETNOW.

Markets have been fairly range-bound although we have had all kinds of commentary talking about a possible uptake in a quarter or two. What is your view and are you on the optimistic side or the cautious front?
I feel there is no real trigger to push it up except for the continuous flow of money that is coming in through SIPs. The challenge is that I believe SIP is slowing down a little bit and for FIIs, this new Budget has caused some kind of difficulty in terms of how they treat income on F&O. That is a challenge we are facing.

But if you look at it objectively from a global perspective, we are a safe haven. However, we are already very expensive. We are at an almost all-time high and therefore everybody is being cautious and the other challenge we are facing in terms of money flow is that America is pulling money back because stock markets look good there.

What is happening with the bond markets? The front page of The Economic Times is talking about how the bond market has now got a licence to thrill. With the yield of 10-year bonds having fallen to a 31-month low, do you think rate cut hopes is going to lead the bond yields? How are you looking at playing out this trade?
I am trying to figure out whether foreign money is actually coming in unhedged to invest in our markets. I am not getting that feeling yet. But that is what we need to do. One of the things that the government is doing which is positive is trying to raise money abroad which will give us some exposure in the international markets. A billion-dollar issue is what they are talking about but at least it is a start.

The second thing is that they are opening up the limits for FIIs to buy in India, which is also very good but the question is are FIIs using it and that too without a hedge? That is critical to the whole thing. The minute they start using it without a hedge and it becomes a sort of infectious knock=on effect, then more and more money will come in which will help us. But I do not see it happening yet. If somebody has the answer to that question, please message me.

Talking about FIIs, we have also got uncertainty around the trade wars once again. The global environment remains uncertain counting down to the Fed meet. What is your expectation on flows going ahead?
In theory, we should be getting flows because we are a safe haven. In practice EMs are getting negative flows but the thing is that people are actually spooked about investing in China. We are getting some money in as a result. But a lot of money is sitting on the side. However, in private equity, in direct investment there is money coming in and certainly money is coming in for yield assets that are like real estate assets. So, that is good and Blackstone and Brookfield and KKR have been pretty aggressive in buying real estate assets. That is good for our country that at least someone is out there but I guess they are buying it unhedged. Let us see how the next phase plays out.

In India, we have got these issues that money is tight, NBHCs are hurting, banks are also hurting. All the stuff that we are hearing is not good for the stock market and it is putting pressure on people who who are looking at entering the stock market. It is putting them further on hold which is not so great.

Where do you stand when it comes to some of the defensives that are coming back into flavour now? The market is being supported by the likes of pharma or even IT. Some analysts see no future for IT or pharma. Where do you stand?
I actually believe that even though the rupee looks like it has gotten stronger against the dollar, it will probably stay in this region and both IT and pharma are definitely dependent on a weakening dollar to improve margins. Let us take IT first. I have actually not been bullish on IT at all. The business model has to change and I do not believe we are changing fast enough and also AI is running faster than we can get out of the way. Yes, I am a little bit pessimistic about IT companies. I am a little more optimistic in pharma companies because I believe that the generic drug makers and their imports into the US are coming back. However, there is a lot of pressure being put in the US saying that Indian drug companies are cheating results and they are trying to put it down. I do not know where this is coming from but it is a sort of concerted campaign to blackface Indian pharma companies.

However, the reality is generic drugs are required, America wants to keep its healthcare cost down and so they will need us. The thing is it is no longer important for them to get the right price today. So will it turn after six months? Will it turn after one year? All pharma companies stocks are under pressure as a result of that.

What would you advise now in terms of strategy?
In terms of strategy the domestic driven stocks are still good. So, FMCG stocks are good. I personally like cement stocks only because projects are continuing, roads are still getting built, RERA projects are getting finished, maybe not in the hands of the original builders, but they are getting done.

The cement stocks are okay and even though the rains have come and prices have turned down a little, that is seasonal. One has to be in for the longer haul. Again, the auto sector is in a mess. People are not buying autos because of NBFCs, I do not particularly like NBFCs but there are obviously jewels in the pack so we have to choose.

I would say that these are all sectors that one should look at and then look for the jewels. My theme has been to look for companies that are actually doing capex, which look like they are actually growing and in that space you are looking at logistics and speciality chemicals. It is niche sectors like that which are making the difference and they are going to give valuations in the market.

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