Mumbai: Pashupati Advani of Advani OTC Dealers feels that investors should be cautious at 14,300 levels. He expects to see a correction in banking stocks. Knowledge-based business like IT, according to him, can be one of the sectors to buy in.
Exclusive interview with Pashupati Advani:
Q: How have you read the final breakout and where do you see things going from here?
A: We are now in a crazy land and I have been advising people to start liquidating even as we crossed 14,000 as it was a high and interest rates were at a high. Now, at 14,300, people are smiling but I would still ask to be cautious. I don’t understand where this buying is coming from.
Q: Do you see a lot of upside fueled by momentum and money from here or not quite?
A: We are here only due to momentum and money, and certainly not due to valuations. If one is prudent, then today you are getting 10 per cent in banks for a year, which is not a bad return. If you are at 14,300 and you add 10 per cent, it comes to 15,700. I would be happier in banks for one year rather than in the markets, because I don’t see it going to 15,000 and change for a while.
Q: What is pushing the buying interest in banks and real estate at this point?
A: In banks, they feel rates are not going to be raised but I think they will be, as inflation numbers seem higher and most people are envisaging that the RBI Governor wants to put some kind of brakes on.
In real estate, they think people will start buying properties and will keep buying properties, as a result of which, prices don’t seem to be coming down.
Q: Where do you see valuations most out of whack? Where would you not hesitate to take profits at these levels?
A: Banks have to still go through some pains and at higher rates, people are going to start saying no to money and anything that is capital intensive is going to get hurt in the long-run. One should look at getting out of those and venture into more knowledge-based businesses; that is where IT has a definite edge, except for the currency.
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Q: The currency cannot be made ‘except of’, but it is a reality. Could you put that into the picture and tell us whether you would buy Infosys sub-2,000?
A: I think Infosys is worth sub-2,000. There is also a subtle bet that the rupee may not go through 40. I happen to believe that it will, but there is a school of thought, which thinks that it might go back to 41-42 and that will probably put IT stocks kicking again.
Q: The point about momentum and money is taken but can a case be built for significant underperformance for this market or for it to trade at much lower levels than now?
A: I don’t think the market is underperforming right now. As to whether it should correct to lower levels, we have got a lot of calendar and had difficulties in the past absorbing large issues and let us see how these go. I am looking at almost $10 billion calendar in front of me and if they all get absorbed that is going to take a lot of fresh input of Indian money away and that will have some play on the market.
Q: What is global mood like on India? In the last few days FII flows have sort of dried up, which has not stopped the market but not too much fresh money seems to have got committed post the market crossing 14,000.
A: Many people are just happy to have a little bit of money and money continues to flow in dribbles. If you want to jump in and get big sums of money, you need to be closer to sub-13,000 to start seeing good flows again.
Q: Aside from technology anything else with some headroom at this point?
A: I am not particularly bullish and would just start lightening up on everything. I wouldn’t actually be looking to buy at this level.
Q: Are you saying risk-reward is against the investor right now?
A: Yes, I would. If you sell shares today at 14,300 and invest that money in a bank, at 10 per cent, or in an income mutual fund, it is a good deal.
Q: What have you made of the phenomenal run-up in some of the media stocks over the last couple of days?
A: There has been a lot of action on rumblings that a lot more foreign players are coming in. Rupert Murdoch has been doing some surprising things and there is also him lurking in India because he has one of your competitors with him.
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Media has been the flavour and there have been a lot of issues and new money into media in the last couple of months, which is getting spent. There are a lot of valuations being created due to the Indian films and entertainment industry doing better and that is also trickling back into the markets, as well as the media companies.
Q: What are the big flags this market should watch out for in the next two to three months, both domestic and global?
A: Rising interest rates are always something to be concerned about and if we are going to have any kind of correction, we are going to have some worry on account of the large supply in India. We can’t keep on going like this, with supply, high interest rate and rupee doing what it is. The rupee has moved 10 per cent in the last two months.
Q: What is the global mood like? What do you sense in your travels abroad because jaws have dropped globally at the performance of equity markets across the world? Are people concerned, euphoric or what?
A: I think people are happy to be in equities and have so far been rewarded for being so. The Dow is at an all-time high. People are looking at coming into equities but the euphoria seems to be a cautious one. That is the best kind of euphoria to be in, as it means that money will continue to trickle in and we will continue to get higher valuations.
Q: If you had money to invest right now, how would you split it between debt and equity?
A: I would put almost 90 per cent in debt. Just be prepared for some correction and that is the time to put it in. I would try to set up overdraft limits and wait for any kind of correction. But I am not alone; there are many people there and the question is whether they do it at 14,000, 13,000, or 12,500. Those who are waiting for 11.500, I guess, are going to be waiting for a long time.
Q: So 15,000 first or 13,000?
A: It is going to be 13,000 first; definitely.
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