The state elections are on, there was expectation of quite a bit of volatility in the markets but came the news of Urjit Patel quitting as the RBI Governor. How are you reading into all of these developments from a market standpoint?
The markets have adjusted reasonably well to these developments. The elections were more or less priced in yesterday itself. On the negative side, there has been the sudden resignation by the RBI Governor. Market participants including the overseas and domestic investors — particularly the large ones — all have the consensus view that an institution and the government are much above an individual. The RBI fabric and character are not going to change. RBI is going to continue its work as usual. There were differences between the RBI leadership and the finance ministry and ultimately we have to rely on the Government of India which has the final say on all matters. It is the elected government which has responsibility to the people of India. Therefore, if the RBI Governor was appointed by this government, can't get along with this government, if that is what is being said to be the real reason for his resignation, then I think it is only fair that he has moved on. Market has taken that in its stride and is looking ahead to global developments and other things. Elections and RBI Governor resignation is out of the way more or less, barring a little bit of volatility of 50-100 points on Nifty.
What about the rate sensitives? We are talking about banks as well as real estate. It is a time of volatility when there is quite a bit of uncertainty with respect to what has gone on in the Reserve Bank. What does one do with rate sensitives?
Frankly, uncertainty is out of the way because the disagreement between the RBI Governor and the government was public knowledge. Now we know that one of the actors and who is supposed to be out of the way is out of the way, the RBI Governor has put in his resignation, we like it or do not like it but that is how democracy functions. No one is bigger than the institution. We will have a new RBI Governor but that does not mean that the RBI is going to change in any manner. RBI will continue as a good regulator, it is time-tested institution.
It is true interest rate sensitives have been plagued by problems regarding NPAs, global volatility in interest rates, oil prices as well as inflation. The fundamentals, the macro factors are going to come into play more than who is heading the institution or who is not heading the institution. That factor is out of the way now.
What about the currency? We are seeing quite a bit of choppiness and volatility as of now. What are you doing with some of the stocks which are intrinsically linked to the currency?
I am no foreign currency expert but most of the people who watch the currency and are relatively more knowledgeable, have been of the opinion that rupee is going to be in the 69.5 and 72 range and that is where it is right now. If we see aberrations range out of this band, then we would probably need to get worried. If we suddenly see a 73 or we suddenly see a 68, then we will need to adjust our forecasting and earning models of companies. But as long as it is in this band, everyone is okay with it. It should not weaken any further beyond the 72.5-73 or so. Similarly it should not probably strengthen more than 67.
You said the markets have taken the election outcome into their stride. What is the way forward now?
I think volatilities can be read as opportunities. It depends on where you stand right now. If you stand as a trader, there is phenomenal opportunity for you in this volatility. Similarly if you are an investor, there is opportunity for you as well because volatility allows you to buy things cheaper.
If you want to invest, yes, some of the holdings do go down. You would get stressed out a bit but you should remain invested in the conviction ideas. Volatility is something that we are living with the world over. Look at the Dow. They are deep markets and we are seeing those 300-400-point moves up and down in the Dow itself. In Nifty, the volatility is nothing compared to what we are seeing in the US markets. When there is volatility, opportunities rise. Wherever one thinks an opportunity can be encashed, encash it. If you cannot live with the volatility, downsize your portfolio for a while, step back and do not invest.
Where is it that you are seeing opportunity in a market like this?
There is opportunity across the market in consumption plays, infrastructure and financial sector plays. Most of the financial sector plays have been beaten down a lot particularly the large PSU banks like SBI, Canara Bank and Bank of Baroda. Similarly, good quality midcaps they have corrected 40-50% over the last three to six months. So, there is bottom-up opportunity across sectors at this point of time. If you have the stomach to live with this volatility, start deploying money. But if you think you would like to come in when the waters are calmer, though the markets might be higher, just stay out. It is all a function of your risk reward profile. If you are an investor, will you take that extra risk and make that extra money? This is the time to start picking you conviction buys.
There has been lot of choppiness when it comes to crude oil as well. OMCs are being taken for a rollercoaster ride! What is your take on the overall fundamental picture when it comes some of the OMCs as well as oil and gas stocks?
Oil marketing companies have been a little wary because they still do not have complete flexibility and independence on fixing the end product prices. The government fiddled with cutting oil prices by Re 1 a just about a few months back. It is a politically sensitive topic where there could be tendency of the government to interfere in the pricing mechanism. So, I would like to stay away from them.
But when it comes to oil and gas sector as a whole, the best play there is Reliance Industries. It is a combination of two-three sectors and there is an unlocking opportunity there. That is the only bet that I would like to take in the oil and gas sector.