In an interview with ET Now , Pashupati Advani of Global Forays says, “the Saudis want the crude prices to go up so that they can gain better valuation for Aramco.” Edited excerpts:
ET Now: How is it looking for the market?
Pashupati Advani: The biggest concern that I see is the rising oil prices and it looks like the Saudis want to take the oil to $80 a barrel. This will lead to tough times for us because every dollar costs our country $3 billion a month or so.
ET Now: But they would want that because there is Aramco IPO in the coming. It is not like oil would climb to $80. They are not the only one.
Pashupati Advani: I think the Saudis want the crude prices to go up so that they can gain better valuation for Aramco. In my opinion, they might win this battle, at least temporarily. However, I am not so sure about long term.
ET Now: So it is spelling gloom for the Indian markets?
Pashupati Advani: It is going to be tough for the markets and there is a rumour doing rounds, I dont know how true it is, about oil marketing companies having to absorb this. But the fact of the matter is that PM is with all the heads of the oil marketing companies right now, sitting in a forum in Delhi and not only Indian, he has got foreign heads with him too. He can probably put pressure on all of them to try and absorb and then they will try and put political pressure to bring oil prices down because China and India are the big users of oil and the rest of the world does not really care.
ET Now: Now we have got litmus test in the form of earnings. Are we going to see a revival in the market or not? Will we test the February-March lows or would you say that pain is way behind us?
Pashupati Advani: I think there is a lot of antipathy in the market and people are sitting on cash. The uncertainty of oil prices, the uncertainties of public banks which are causing their own sets of pains are weighing on the market. Then there are talks about domestic mutual funds going easy on ICICI Bank and Axis Bank simply because of the governance issues. These fund houses want clarity about this because as fund manager you may want to cut back your position and then wait for things to happen. And if things happen properly, you can buy back the stock at a higher rate. But not doing anything is not good.
ET Now: That is interesting because Sanjay Parekh from Reliance Mutual Fund, who manages the Reliance Banking Fund there hinted that over the last one month he has actually increased his exposure to corporate banks.
Pashupati Advani: Corporate banks as oppose to public banks?
ET Now: That is right. In public banks he holds only SBI. And let us not forget that the corporate banks include Axis and ICICI Bank.
Pashupati Advani: Well, we do not know what he has added we will find out next month. But the reality of the situation is that everyone is looking at those portfolios and rebalancing. The money will flow into banks like IndusInd and maybe HDFC even at this level versus Axis and ICICI Bank.
My belief is if the head of either or both of these institutions change, then the new person who comes along will take out all the mud and that will be bad for the stocks in short term. In the long term, it will get absorbed but at least they do not want the responsibility of another Rs 5000 or Rs 7000 crore coming out, they will just try to wipe the slate clean.
ET Now:If there is someone from within the organisation who is moved up the ranking order, then it may not be as great news but if it is someone from one of the pedigree large private banks taking over the helm at Axis and ICICI Bank, then we are looking at a good 10-20% upside immediately.
Pashupati Advani: Yes, but whoever takes over will have to write off the pain first. Even in multinational companies all over the world when a new boss comes in, the first thing he does is cleans up the bad debts and then perhaps after that the bad employees.
ET Now: You are saying right now is not the right time, then when would be the right time? The market seems to be latching on to this transition phase as an opportunity already with the way the stocks have moved in the last two-three days. The market is more optimistic now and they are okay with Shikhas announcement coming through but sooner or later there might be expectation of Chanda Kochhars future too.
Pashupati Advani: The issue with the ICICI board is that they do not really want to take a stand unless RBI asks them to. And there are some articles in the press today that say that RBI is starting to investigate.
ET Now: The finance ministry also has a view on the subject.
Pashupati Advani: The finance ministry will probably intimate its view and nobody knows who will execute it. The reality is that you are looking at a situation where there will be a transition but the question is when? And frankly, if there is a problem, then the transition should be sooner rather than later. There is not much depth of succession in either of these institutions currently and going through the formal process of getting an outside candidate will take time. And the government has a very low shareholding in both ICICI and Axis Bank.
ET Now: Are you saying one should definitely not buy these banks right now?
Pashupati Advani: There is temporary enthusiasm and euphoria on the thought that this mess will get cleaned up, which is good. But we are talking about now and the execution will probably happen once Shikha leaves.
ET Now: What do you think is happening with Fortis? Manipal Group is trying to sweeten the offer for Fortis minority shareholders. Do you think it will get stuck because Rs 155 is a price that the big boys may not quite agree with?
Pashupati Advani: We have seen this in the steel industry as well as cement industry where people have stepped up for assets because they have calculated that it is cheaper to buy than to replace. There are various stakeholders and they have to be taken care of. If it means more money, then the person who is writing the cheque has to take a call whether it is worth it or not. At least the in steel and cement industries, the buyers have decided to write bigger cheques and it looks like that TPG Manipal Group is also likely to write a bigger cheque.
ET Now: So do you buy the stock or not?
Pashupati Advani: Well it has been in play for about six months and it will probably see a higher value.
ET Now: The life high on the stock was around Rs 200-210. How much more headroom can there be?
Pashupati Advani: There are issues of governance and those issues will go away once the transition happens. Certainly the Manipal family is considered to be good operators of hospitals as well as respectable promoters. TPG has got clean lots of money and so it is a winning combination. The question is about the price that they are willing to offer. If this does not work out then who else is going to buy because if everyone walks away, then the stock will certainly fall down.
ET Now: Are you saying it is worth taking the risk?
Pashupati Advani: Yes I think so.
ET Now: Even now, even today?
Pashupati Advani: I think even now because it is play. I think there are two or three people who may be in the game and somebody may come out of the wood like we saw in Binani Cement. UltraTech came out of the wood and looks like it is going to get the company.
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