Mkt uncertainty to end in 6 months: India Infoline

Q: Are you just going to do a token buyback to send a signal to your investors or is it going to be a meaningful one?

A: I do not think there is any concept of token buyback. We do not have to send signals to anybody; it’s a decision of our capital and funds management so we will do whatever is allowed as per the law. When the board approves, we can go up to 10% of our net worth as on 31st March. So the total amount works on to Rs 98 crore. So subject to the market, we will do whatever is possible.

Q: You are happy blowing Rs 100 crore on a buyback at this point or would you rather want to preserve this cash for operations in such a difficult market environment?

A: At 20,000-21,000 everybody would advice you to preserve equity and not dilute and today there is a cash mania so everybody wants to sit on cash. But we have a different view internally. We think that now liquidity is easing and as a company we are debt free, we have a balance sheet of almost Rs 1,500 crore. So this is a time when everybody is trying to sit on cash which is very equivalent to – at 20,000 everybody wanted to sit on equity and not dilute at all. 

Q: Have you worked out the details on the ESOP (Employee Stock Option Plan) that you are going to reprise and what it might mean for dilution now for India Infoline?

A: ESOP scheme will be approved by shareholders in our EGM (Extraordinary General Meeting) which is scheduled on 15th December. Thereafter there will be compensation committee in board meeting, so the details would be worked out then which is almost about a month away from now.     

Q: You have the best pulse not just on the market but on what’s happening with the financial services industry more than how bad it’s going to get. How long do you think its going to last because the whole performance for stocks like yours will be a merit to what happens to the market?

A: The market is passing through a phase which is unprecedented in our lifetime so it’s difficult to predict what’s going to happen. There will be more news that is event driven. Now people are hearing there can be some problem with Citi Bank so that is on the global front so there can be more bad news from Chrysler or automobile companies in the US and it appears now that the risk that the things may go out of control in the US and will see something that we have seen ever before.

Coming to the domestic front, there is uncertainty related to elections. We do not know what kind of government, in what form, what stability and what nature of government will come into power. So the next six months will be a period of uncertainty and if you are little bit fortunate then things could recover thereafter.

Q: What are you hearing from your institutional desk on how the global companies are positing themselves? Over the last few weeks what’s been the refrain from the large institutional clients that you have and how are they going into the next year?

A: I think that the month of October was quite a panic month. When Lehman Brother burst people were scared whether their CDS (Credit Default Swap) would get settled or not but that kind of panic was absent during the month of November. But now for last few days again there has been some fear that more bad news could come from the US.

Most of the hedge funds sold out in the month of October. Some bit of hedge fund selling will continue but on the other hand there are long funds or funds that invest for the longer-term. They are looking to invest at these opportunities so they are looking to buy at levels like this.

But market volumes are low because everybody is sitting on the fence and trying to wait till the storm is over and dust settles because this kind of times are very uncertain and just that individual investors even the fund managers are in a bit of a flux and they are indecisive at this point in time       

Q: You have seen many bear markets in the past. What is your sense of how different this one is and whether it can be much longer than the bear markets that you have seen in the past?

A: It’s very different from the bear markets that we had seen previously; this seems much worse. But it’s paradoxical that macro fundamental situation is not as bad as it is made out to be from the global environment and global media as well as the news flow from the global financial arena.

If you look at local market you look at India’s market and India’s economy our exports are just about 12% of the GDP (Gross Domestic Product) even if you cordon off India from the rest of the world, the only thing we need is crude oil import; our economy can grow on its own.

Fundamentals and macros are not as bad and things are overdone in terms of valuations. But coming to the question about how long it can last, I think it can last longer. Typically, bear markets last for two-three-five years but the panic goes away and then people start bargain hunting and picking up stock from longer-term point of view. So it may or may not come true because in the past I have been optimist but haven’t been proved right with the market. But it looks like we are near a bottom maybe from here 500-1,000 points one can see a fall. But I do not share the pessimist view that things can go down to 5,000-6,000 levels.

I think the recovery should soon start and there are few reasons for that – from January onwards we will see that some fund allocations comes to India because other than India there is hardly any economy which can absorb investment and give you good return. So I am not that bearish and also local investment if you see our savings are almost USD 330 billion per annum and there is country’s domestic savings which is almost about a billion dollar per day. So it’s a huge domestic market here. I think three-six months we have to pass through this pain and then things should recover.                   

Q: What’s giving you a sense that the market is bottoming out now? In terms of sentiment has it turn towards apathy or is the market just looking too oversold to you?

A: I am not saying the market is bottoming out in the sense that market may fall from here a bit and there are quite a few people who are talking about a 30-40% fall from this point onwards which is the view that I do not share. The markets have already corrected about 60-70% from their top. Midcap and smallcap are down 80-90% from their peak and I do not think they can fall much from these levels. When everybody is bullish the market starts coming down and now it’s a point in time when everybody is bearish people can’t see anything which is positive.

This is very similar; you go back to the first or second week of January this year there was nothing negative except crude oil prices and today nothing’s positive except crude oil prices. In the first or second week of January nobody was talking about the markets ever crashing or ever falling or even correcting. People said a possible correction would be short lived.

So the sentiment is always overdone. The pendulum has swung from one end to another end. So now is a time when if somebody is a long-term investor and if not looking at price for one-two months or three months perspective then now is the time to buy because we can never touch the bottom. The number of trades that happens at bottom are so few that you have a probability which is less than buying a lottery ticket. So you can never touch the bottom but if you ask me then we are near bottom.