After quitting Edelweiss, Vikas Khemani is back with Carnelian Capital Advisors. In 3-6 months, it would be one of the best times to invest in market, Khemani tells ET Now.
Edited excerpts:
What brought about the change?
It was there in my mind for quite some time. After working in a great organisation like Edelweiss, the entrepreneurial bug always keeps on biting you.
You left Edelweiss, the stock came down 50%. Is it just a coincidence?
That is very wrong…
I am putting facts. See my job is to put facts out and you have to react to facts.
It is an unfortunate, chaotic situation in the market. Edelweiss is a great organisation. It is a great company and it has long future over next 10-15 years.
Will you buy the stock now?
Any day. I believe that it is a great management team, a great business model and I continue to believe that whether I am part of it or not, I would definitely love to be a shareholder. Actually, I must disclose, I am a shareholder. It will do well over next 8-10 years and I have not sold this stock. I have no doubt in my mind that Edelweiss is a great franchise, with great management team. It has very strong risk management processes and risk-and-credit cost will be there for every model.
I do not think there is any truth in some of the crazy talks we hear in the market and being part of the organisation for so long and having seen the risk-management processes, there is no doubt in my faith in Edelweiss.
Are you happy that crude has finally cooled down from those highs? Are you more anxious that we have got so many events lined up including state elections and general elections and the fact that the market construct is looking shaky and the currency is continuing to be weak?
We have passed through very turbulent times, where currency, crude, some of the internal issues, had kind of hit together. We had an overleveraged market, leading to the IL&FS issue. All these issues created a very big dent in the market. Having seen this kind of situation, definitely the risk appetite of the market has reduced right now but there isnt any structural issue which can create a significant downside from here,
Obviously one can never predict when the market is going to bottom but by and large, most of the damage is done. If you are ready to overlook another 5-7% kind of downside, one can never predict in this kind of fragile environment. A lot of froth is out and that gives you a little bit of comfort and some of the issues like currency and oil is settling down. In probably three to six months time, it would be one of the best times to invest in the market.
You might see a little bit of a slowdown because of the ongoing issue in the shorter term but structurally there is no challenge. When markets give you a set-up like this, those are the times and opportunities to build, rebalance and adjust your portfolio. In good markets, we always buy stocks, which now we should not probably hold. So, it is a time of rebalancing but at the same time I remain completely bullish on this vintage. In next three to six months, it will give you the kind of return that you probably saw in 2013-14.
If the credit in the economy gets sucked out, be it at retail level, at corporate level or SME level, it will slow down the wheels of economic recovery. Have markets really recalibrated the growth on the downside?
Which is the point I made. We might slow down the growth but I do not echo the sentiment that NBFCs will stop lending. This is a temporary phase. Right nowm when you are in the middle of a crisis. you have to stop but it is not the case three months down the line,. Watch, mark my words, three months down the line all these NBFCs will be back. NBFCs serve a purpose in the market. They are not a business model created out of vacuum. They serve a purpose which banks cannot. In my opinion, they will continue to remain in a reasonable quantum and size. They may not grow at the earlier rate of 30%-35%. That kind of growth may not be immediately possible,
Secondly, this opportunity has corrected the anomaly of asset liability mismatch. Most NBFCs will have to now keep that in mind that asset liability mismatch has to go away. That will increase their cost of borrowing but they should be able to pass it on. If they are not able to pass on to that extent, competition will go down.
The market has a self-correcting mechanism. No doubt, short term there will be a slowdown but I have no doubt that NBFCs will continue, grow and flourish.
In banking, private sector banks in my opinion offers a great opportunity right now because for them, both liability and asset side is sorted out they will have less pressure on pricing as far as the asset growth is concerned as they can now grow in housing when others are not growing as fast. To that extent, the pendulum at least for the next 12-18 months has shifted more in favour of some of the private banks like ICICI Bank and Axis and HDFC Those guys would in my opinion do very well. I have no doubt in my mind but NBFCs will stay.
You are painting all NBFCs with the same brush. Do you think HFCs within NBFCs hold value, housing finance companies?
HFCs also serves a purpose.
But arent they more susceptible because of pockets within NBFC?
No, they are not susceptible. The only thing which is going to go away is the asset liability mismatch. NBFCs were borrowing short and lending long and that will have to be corrected. To that extent, NIMs have to be adjusted or the pricing have to be adjusted.
Would not you say that housing finance companies are more at risk because of their ALMs?
Right now, I do not think there is any systemic issue. Some of them will have to go through the pain because they have to adjust and have to repay some of their CPs but housing finance as a model will exist.
Companies will not survive or will slowdown. I do not think anybody is going down but some will not grow as much. HFCs with a little bit of parentage credibility, better rating profile, better governance, better risk management would have a better chance than some of the others. Some might de-grow till the time the readjustment happens. Again, we will have to wait and watch but both NBFCs and HFCs will continue and do well.
What is that one stock idea or a theme, which you would recommend buying for a slightly shorter-term timeframe?
I am very bullish on private sector banks as a theme and with all disclaimers I can say that for ICICI Bank, the worst is over and it is a time where there are lots of opportunities, Leadership change are taking place, the organisation is getting momentum and in this chaos, if the stock never falls, it says something about the bank, In my opinion, it offers a reasonably good risk reward for the investors over the next 12-18 months and even longer for that matter.
Will you buy stocks irrespective of the election event?
Yes. We have too many elections in our lives. Elections have short-term impact. If you are ready to prepare for a 5-7% downside, and sometimes even more, I do not think it will matter.
So your view is very clear that the September-October 2018 trough in the market is a period you should buy and participate in. If you have cash on your books, just invest and get in like a poker match all chips in?
There are lots of events. Rather than going all in, in next three to six months, I would say you deploy your all money. In next three to six months, I will go in because you will see most of the events playing out — whether it is international or local.You will have the Fed playing out, the US elections playing out and local elections playing out,
In my opinion from here to March, April, May should be a great period to build your investing portfolio.
Is Carnelian your lucky gemstone? Why Carnelian Capital Advisors?
We did lots of names and this came out. It symbolises rebirth, beginning again, bit of luck, bit of prosperity. I said okay that is what I need right now.
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