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Why Pashupati Advani is ready to bet on power and telecom

Economies all over the world, not only in India, are out of sync with the markets.

ET Now|
Dec 03, 2019, 02.56 PM IST
Pashupati advano-1200
Big funds are buying into real estate and they are bottom fishing for yield assets. We have this new class of investors coming up which is also going to take away money, says Pashupati Advani, Founder & Chairman, Global Foray. Excerpts from an interview with ETNOW.

There is a lack of excitement and cheer on the Street irrespective of the all-time high being clocked just last week. Why is that? Have the economic headlines overtaken the mood?
People are still nervous despite stocks hitting all-time highs. I just heard a speech of Donald Trump saying that with him as President, stock indices have hit all-time high a 130 times. So, he is thanking himself for it. The reality is that the economies all over the world, and not only in India, are out of sync with the markets. It was tough enough to buy a stock at 25 PE, now you are asking us to buy the same stock at 35 PE because the earnings are little bit lower! So, I do not know. We are going through challenging times and as they say it is like musical chairs. Let us see what happens.

But do you buy more of the same irrespective of the PE multiples or do you hunt for beaten down names which have the scope for revival whenever the broader markets pick up?
Unfortunately, our market is driven by liquidity and the liquidity is in the form of SIPs which are actually buying more of the same and they are not really looking and searching. Yes, you will find another two or three stocks to add to the pile, but basically incremental funds are coming in and the same stocks are being bought again and again and becoming 40 times rather than 25 times.

Are you still anticipating a recovery? Some people are saying by the first quarter of next year, we will start to see signs of things improving. We might see another rate cut, further stimulus. Are you hopeful or would you remain cautious for another year or so?
It is very optimistic to say that the recovery is going to come fast. I do not see a real trigger in terms of an economic recovery. We are seeing a lot of FDI coming in in the sense of private equity investment. Big funds are buying into real estate and they are bottom fishing for yield assets. We have this new class of investors coming up which is also going to take away money. There are people with money and there are people looking for opportunities but they seem to be shifting away from the public markets unfortunately.

Are the likes of YES Bank, RBL Bank out of the woods or are the credentials of the new investors still questionable?
When you have the best of the best beginning to hurt a little bit, you know our top of the pile is beginning to slowdown in payments. The banking crisis can be hardly a crisis. When good companies are going from 30 days to 60 days to 90 days in terms of payments, it is obviously slowing the economy down even more. I think that it has not yet percolated to salaries, thank God!.

What about auto?
I am not bullish on autos at all. I think two sharp winds are hitting auto; one is the millennial culture -- people who do not want to own automobiles and are quite happy with the Ubers and Olas. The other side of it is that we are moving to electric cars. But we have not got really good electric cars yet and people are waiting for the right car. The government also has to reframe their policy on duties. These two shifts are hurting the auto industry.

When you say beaten down names, would that include something in the power space? Would you be looking at deep cyclicals?
Yes, I think so. People do need power and so I would look at it like a consumer durable. I would like to see people saying I have had electricity for 10 years and now I do not want it anymore! That does not happen. It is insensitive. Likewise, it is probably the time to look at telecom because Vodafone and Bharti have been beaten down and maybe that is an opportunity as well.

Really? You are not worried about the AGR dues?
The government seems to be giving them more time to do it and I do not think either of those two players are ready to walk away. They are raising ARPUs. The combination of all those three allows them to stick around for a little while. It is a risk investment but it is definitely worth it.

What about metals then?
Metals, I am a little bit looking over the sidelines because the demand in metals had been driven by China which to me is a black box. I do not understand what is going on there. But since the market drive in metals has been from China and which seems to be slowing down, that is bound to have an effect. Even in oil, it means the demand will go down a little bit.

Consumption stocks are trading at high valuation. Would you start to book some profits and move away from consumption or would you rather remain invested there?
As long as the market has momentum and it looks like it has got some momentum, one has to stay in. I do not think one should get out and walk away. People said let us sell Hindustan Lever at Rs 500, and look where it is now!

Has the trend turned bearish on IT or is it just neutral?
There is a bearish trend in IT. I have been saying that the business models of our IT companies have to change and some of them have been able to pick up some trends but not all.In the whole stack, probably TCS has done better at managing than others, but the others are catching up. Again, we have been helped by the rupee getting weaker. I do not see the rupee getting stronger, I see no trigger to make the rupee stronger. I think the government is sort of letting it go slowly and that will help the IT companies.

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