Jun 04, 2016, 03.20 PM |
Ramesh Damani, Member of NSE, was talking about how markets will find a way to get back on their feet if the US Fed raises rates. He is most interested in product-oriented companies like the ones which are into anti-virus or banking.
Below is the verbatim transcript of Ramesh Damani's interview with Anuj Singhal and Sonia Shenoy on CNBC-TV18.
Anuj: What a conference we had today and a lot of good positive vibes from here?
A: As they say there is nothing more tragic than when a young life is lost whether it is in war or to cancer, so the Ira Sohn conference is a great way to try and raise money to help fight paediatric cancer and I think they did a great job today. This was the inaugural conference and we have an outstanding line of speakers and all of them presented some very sharp ideas, so it was a very positive vibes and I came back as a listener today but very happy.
Sonia: The market has been in a phase where 9 out of 10 people are bullish. Do you see any risk to this bullishness?
A: If you go back to Jan-Feb and play your tapes and everyone was bearish so these things go on in a pretty much yo-yo, but the broad thing that we are maintaining is that the underlying bull market is continuing and I think January-February was an aberration, the kind that shakes out the weak bulls in the market, which is what happened really. There is nothing to have become too bearish in Jan-Feb or too bullish right now. The undertone remains good and we will close the year positive, very hopeful about that. Market has shown some leadership, a lot of high quality stocks are making new highs including in banking, cements, entertainment. The midcap have not done as well in this round as they did in the previous round, but sometime it is a merry go round, it catches up in the next few quarters.
Anuj: Two or three themes clearly stand out consumption have done well and non-bank financial companies (NBFCs). I want to start with NBFCs is it now getting overheated, almost everyone I am hearing is buying NBFCs and we have seen such a big rally normally when such things happen (a) it may be a bit of peaking out indicator. Do you think NBFCs are running the risk?
A: Maybe in the near term I am not necessary sure the loss of segments to the NBFCs; home finance will probably do well, the micro financing part I am not that hot upon because it has some assumptions which I am not sure are well founded, but we will see of that. Plenty of values available in the market the oil marketing companies to give you an example. India oriented product companies to give you another example. There is lots of value out there for investors who want to go and find bargains in a manner speaking.
Sonia: But I heard that you didn’t speak at this conference today but there were plenty of influential speakers Rakesh, Akash, Shankar what was your key takeaway from any of the speeches that you heard?
A: It always nice to hear your peer groups speak and look at the ideas. I think with Raamdeo I found they came full circle with airlines. He is used to really not like airlines and now he made a presentation on airline, so that you see a reflection of his change in thinking also. Rakesh you always pay very close attention to because he is an originator of so many ideas and I think DLF as a lead indicator for the real estate recovery. It’s pretty strong because I myself have been fairly bullish on the real estate sector. I think it’s out of favour, it’s bogged down, it’s contrarian and if we expect a prosperous India in the next few years people will want houses, so it will do well. There are a lot of good ideas out there in fact, all of they gave me pause to think.
Sonia: In fact, Rakesh also spoke about Tata Motors, that’s a stock that has been hitting new highs over the last week or so, that is Tata Motors DVR and Tata Motors. Do you think we are at the threshold of a big revival in the earnings and in the stock?
A: I think the earnings have already revived staying in a fairly single digit PE and you don’t argue with the king and if he says buy, you buy it. I don’t want to put a contrarian opinion on Tata Motors right now.
Anuj: Let’s talk about the stock that has made you a lot of money in the past United Spirits. It’s corrected quite heavily now. Lot of headwinds, do you think it’s corrected enough, is there temptation to buy again and sit back?
A: Some time I find this a bit funny because when I was buying the liquor stocks but in modest out here, the stocks were trading at penny stock level. You have Rs 200 crore market cap this kind of the years. It is at Rs 20,000-50,000 crore market cap I just don’t see that much excitement in my eyes to buy. These are good stable businesses and they will do well, generate huge amount of cash flows, but I think for the next year or two they are still going to struggle to get the operating house in order, so I am not sure it’s a bargain at this point, but over long run this industry does well and Sunil who presented on the clip two videos to say how alcohol consumption in India has progressed from the rich drinking it to regular people drinking it, but the fact of the matter is you saw in the film, Deewaar when Parveen Babi and Amitabh Bachchan are in a bar where he say that, “look everyone is drinking, he is drinking because he is happy, he is drinking because he is sad, he is drinking because he is celebrating”, so alcohol is a universal lubricant.
Sonia: That’s set the mood for our Friday night for sure?
A: Happy hour coming up.
Sonia: You didn’t speak at the conference, but if you were to speak what was that one theme that you will talk about which could be the next winner?
A: I love to talk stocks. It is not that I am embarrassed to talk about stocks these days, but there are Securities and Exchange Board of India (SEBI) rules that prohibit us from doing that giving respect to that, a thing that fascinates me is when we were young analyst in 90s we got our treat under the great Indian tech companies who were in the service oriented model Infosys, Wipro, TCS these are all the companies that are multibaggers for us and made us a lot of money, but almost since that time analyst of my kin and we are looking for product oriented companies in India, people who sell packet software by name to domestic market or globally like Intuit say in America or Tencent in China.
Finally I am finding after 20 years of looking there may be 3 or 4 companies that are selling product oriented work and decent revenues, 20 percent profit after tax (PAT) margins and addressing a different market, identification, benefits transfer, antivirus, banking, so I am excited by that area because they are still unrecognised values for the market, they have fairly cheap market cap. I think one or two of them will become very, very promising as the years go by.
Anuj: I tell you something there are not too many listed stocks in the space, so if some of our smart investors are watching they will probably zero down the stocks, but one more space where you got in early was the logistics and if I am right you got fair bit of money out of that as well. There is fresh talk of goods & services tax (GST) being passed again and all. Do you think that could again be another story because it’s corrected quite a bit from the high?
A: The problem with value investors is you like to find thing so free no, no at bargain. These stocks are now well discovered by the markets, so I don’t necessarily find them at throwaway valuation. They will do well. The fact that as Mary Meeker reports in an internet trend study of 2016, that India is going to become the second largest internet user crossing America, so China and then India and we know that once people have smart phone and have internet they do shopping on that, so it is going to create huge demand for logistics, media, packaging and the like, so these are now well discovered themes also in the market.
Anuj: This market has seen a lot of domestic flows in fact, the reason this market has not corrected as much may be as it could have given the global headwind was because the domestic institutional investors (DII) flows remain intact and the domestic investor remain intact. Do you see that as a big change compare to the last bull market do you see a lot of domestic investors now in a position to really make a lot of money out of the next bull market?
A: I hope they do because it seems bit strange to me that foreigners are more bullish on India than Indian domestic investors are, but I think it’s changing. Once they realised that you are not making money in real estate, barely making money in gold, will move to equities as their asset class and Anuj is never tired of saying it is the only thing that gives you long term capital gain tax free. It’s a great advantage to be in equity, you get a handsome yield, you get great businesses and things you can hold it for period of time. So you are right that domestic retail investors will come back and fuel the next few years of this market.
Sonia: One more theme that everyone very excited now is the rural-agriculture theme with the onset of the monsoon, so whether it is your tractor maker, your Fast-moving consumer goods (FMCG) companies. Are you interested in those pockets?
A: I tend to avoid these. We don’t try to pay these bumps for three months. I am looking at businesses over the next 2, 3, 5 years and I hope that there will be plentiful good monsoon during that time. I particularly don’t happen to play those themes, so I don’t look for those bumps in three months because of a good monsoon.
Sonia: Nagnath was just with us 5 minutes ago and he said that there could be a big global correction underway over the next three months because of perhaps variety of issues whether it is Brexit or the Fed. Would you concur with that view and if that comes about then should investors jump in?
A: For the last five years you have lots of reason to exit the market, but there is one reason to stay because market gives you positive return compounded over long periods of time, so yes it could happen. I think if the Fed raises rates for example, I expect that may happen in July. It would be fairly earth shattering event for the market, but we have seen interest rates hike before, great businesses conquer that, bull markets conquered the wall of worry if you will. While it will rattle the market, I think we are in for the long haul and we want to keep great businesses alive irrespective of the Brexit happen, irrespective of the quarter point rise of Fed happen.
I just feel that the last 30 years of investing had taught me that, “Just as Rome wasn’t build in a day, great businesses aren’t build in a quarter or a year”, you have to own that piece of the business for a period of time and then they give you that 20-25 percent compounded return which is a holy grail in a business, so I am pretty optimistic sitting from where we are today that despite Fed rate, despite Brexit, despite US elections coming up. The markets will figure it out.
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