While everything is looking okay and markets have digested that shakeout in the mid and small cap stocks, why do you think FIIs are selling?
There are two aspects. One is that the overall emerging market basket is not doing well. The emerging markets index has corrected nearly 15% from the top and many of the key markets in China, Brazil, Korea, except for one or two markets like Mexico and India, have corrected substantially. That typically leads to ETF outflows from emerging markets. So, one part of the outflow story is because when the money moves out, India’s allocation also gets sold out on that particular day as the redemption happens.
The second part is obviously the valuations part. There will be a lot of active fund managers who will look at valuations and find that Indian markets are now at 90% premium to emerging markets — which is a very rare phenomenon. So in pure valuation context also the picture is not looking as good. So I think some of the active fund managers could be selling.
Now even if we take both these factors into account, the FII outflows actually have not been as large as they could have been under normal circumstances.
Bharti is looking to raise capital via rights issue. Does it make sense for them to raise money via rights issue because ultimately, the forward looking EPS in a couple of years will get diluted. For minority shareholders, isn’t debt a better instrument?
There comes a time in the life of a company when they have to consider a risk so they might be bullish. We might be bullish on the company but then they look at an opportunity to raise money which could deleverage their balance sheet and take care of any contingency and risks which come through. All the telecom companies have significant net debt on the balance sheet. So even if cash flows improve, the debt will still remain. This is a way to deleverage, rights issue vis-à-vis QIP etc shows that the promoters are confident about the future and they have declared that any unsubscribed part will be taken up by them.
The rights issue discount is just around 10% which is not substantial. There might be some investors who might not think this to be an attractive instrument where you are getting a stock just at 10% lower which was the rate maybe a month, month-and-half back. It could be an opportunity for promoters to increase their stake in a manner where they will also need to put in money in a staggered manner.
So there are pros and cons to this but many companies who actually have not required money and are looking at valuations, have raised money over the last many months. In the telecom sector, these companies should deleverage their balance sheet for long term sustainable returns by existing shareholders. I do not think it is a bad move.
The choice of the instruments could have been many and they have taken this route and staggering it out over 36 months. That gives an opportunity for even the other minority shareholders to take a view on putting in some part of the money now and then, looking at how the company is doing and deciding whether they want to put in the money at that time or exit.
Last series Nifty was largely aided by , what could come to rescue now? Do you think a churn is happening in Bank Nifty? Either the banks have to come up or markets have to go down?
You have stated the two sides of the coin: either the markets are going to fall or banks are going to rise. That is a given. Now considering whatever the picture is on the ground for banks to rally, it could more be a technical move. Fundamentally, there does not seem to be an argument for any significant rally in banks at this stage given the credit growth picture and the NPA stress which was seen in the last quarter.
In the last series, Reliance contributed and all the IT stocks went up substantially and to that extent even on IT, we have some margin concerns given the way inflation is playing out.
I would think that for the overall market the valuations are high. There are some value stocks like
, L&T. Bharti could remain subdued. L&T has some catch up to do because it has still not performed.
There is something which would come to the rescue of the market overall. Some banks could rally like we have seen Bajaj Finance continuing to rally so much but some of the larger ones like HDFC obviously have had a catch up. Some banks like Kotak and some other private sector banks have continued to underperform. There is a possibility of some uptick coming through in those banks.
