Long-term mkt outlook positive; bullish private banks: Ambit


Despite the current volatility, the long-term outlook for the market remains positive, says Vaibhav Sanghavi, MD of Ambit Investment Advisory. However, going ahead, he expects more outflows from emerging markets. Sector-wise, he is bullish on private sector banks and two-wheeler companies. Sanghavi also expects more focus on rural spending in the Budget. Below is the transcript of Vaibhav Sanghavi’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18. Sonia: The market has given a lot of despair to the bulls lately and at this point, there does not seem to be any positive trigger that can take the market out of its slumber. What is the sense that you are getting? A: Let us take two scenarios, scenarios in the sense the long-term and the short-term to medium-term. Long-term, the valuations definitely look pretty exciting and relatively cheap. At the same time, looking at the amount of uncertainty and the amount of variables which are there lying in global markets today, right from what the US Fed is going to do in terms of the meeting, in terms of their statement, what is happening with oil, what is happening with commodity prices, China, Europe, Japan, there are too many moving parts out there in terms of global scene. All this is actually turning out to be pretty much emerging market (EM) flow negative scenario which is happening for the first two to three weeks which we have seen in January. We have already seen USD 1.8 billion of negative flows from foreign institutional investors (FII). So, in the short to medium-term, there is too much uncertainty. It is extremely tough to point out to any direction. Having said that, I maintain that longer-term story for India looks pretty good on the economic side. Latha: Should we look at 7,241 as a reasonable bottom, or is it only for the month? A: It is difficult. The levels are pretty difficult to be attributed to because, I am just giving a hypothetical case, if we approach 7,300, we will start speaking about much lower levels at that point in time, because the news flow around that would be something that would be governed at that point in time. So, it is difficult to assess the levels in the short to medium-term. Having said that, there might be temporary respite or probably a bounce back looking at oil prices, whatever they have been doing for the last couple of days, having a bottom about USD 26-27 and they have been rebounding from those levels. Sonia: Foreign investors have sold about Rs 13,000 crore in the month of January so far. Is there anything to suggest that this selling could abate in the near-term? A: Unlikely. The main reason is basically, for the selling to abate, look at stability in commodity prices, stability in crude. Once that stabilises over a period of time, you might see emerging market outflows to stabilise. Having said that, EM outflows in the last 6-7 years are at the lowest percentage in terms of the global portfolio allocations. So, there can be an upside, probably but, I will wait for other macro events to stabilise before taking that call. Latha: What is the sense you are getting about this contract itself? Should one expect some kind of downside support simply because there has been too much of shorting earlier on in the series and therefore, some support will be there at 7,300? After all, a lot of Puts have been written there? What is the sense just over the next 48 hours, simply because the market is today, not even taking advantage of somewhat positive global cues? A: In terms of the expiry, one has to understand that a lot of arbitrage unwinding which is happening this expiry and at the same time, reverse up positions have also been taken. Now, how does it play towards the end of the expiry, it is very difficult to tell. Having said that, the roll-over positions at this point in time are also pretty low as compared to what happens in the previous months. And the spread costs have come down to about 35-40 basis points on an overall basis which according to me, is not a very good situation to be in. So, I am not too excited about what goes up to expiry at least. Latha: You mean 7,300 can be taken? A: As I said, it is very difficult to pin-point the level, but the trend pretty much remains clear at least in the short to medium-term. Latha: Which is negative? A: Which is flattish to negative. Sonia: If you had to pick out two or three largecap stocks where the numbers have been good and the valuations are at attractive levels now, what would they be? A: What we have been bullish in our long/short portfolio which is Ambit Alpha Fund, we have been bullish on one of those private banks which is pretty much strong and some consumer discretionary names led by two wheelers. We have been bullish for four-wheelers for long and now, we are shifting slightly to two wheelers. At the same time, we are trying to push up some amount of exposure to rural theme because we believe that in the coming Budget, you will see a huge amount of focus on the rural side to pump up the economy on the rural side. Latha: In your long/short fund, are you net-short now? A: Yes, marginally. Sonia: In which sectors? A: We are selective. Nothing on a sector broad-based basis, but we are short on couple of public sector undertaking (PSU) names, we are short on couple of stressed names and the bigger thing is basically we are hugely in cash. So, net-short is not much in terms of percentage, but we have taken a conscious big cash call. Sonia: So, what is the cash level now in percentage terms compared to what it was about six months back? A: Six months back, in fact, for the last nine months, since the turbulence started in terms of markets, we have been relatively in high cash. And on average, we have been deployed around 50 percent. This time around, we are in cash by about 80 percent. Sonia: I wanted to chat a little bit more about the banks, because there is that fear of some of these private banks having a higher exposure to stressed sectors, higher provisioning that they will have to make, etc. Do you think that the private banks are out of the woods just yet? And if not, how many more quarters do you think we will have to wait? A: On your second question first is basically in terms of the quarters, the March quarter should be the final one because by then, you would see all the provisions being made and whatever needs to be classified in terms of the NPAs would be done and over with. Having said that, private banks would definitely be in much better position to absorb that shock, vis-à-vis, your PSU banks. So, we will probably stick to private banks currently, but at certain point in stage down the line, PSU banks, purely on valuation front, would start looking attractive. But only after March. Latha: Do you think that markets will, how much more further more can the bank stocks go? How much more will the market punish them? A: It is extremely difficult. What is happening is, basically banks are tracking the new stories in terms of the news flows, rather than in terms of the valuations in the immediate term. So, any hangover in terms of potential negative both in NPLs, provisioning, profit and loss, or probably the quarterly numbers, I think that is where the street does not want to take position in. Once it is out of the way in terms of the negative news flows, street will start looking positive on the entire pack.