India is not a classic liquidity driven market, it’s quality driven too: Vallabh Bhanshali

Cheap prices are the biggest friend of an investor and that is what they should focus on and forget high markets, low market whatever etc., says Vallabh Bhanshali, Chairman, Enam Group. Excerpts from an interview with ETNOW.

Twenty years ago when Mr Shourie and the Vajpayee government started the disinvestment process, you were part of that. What is your initial reaction to the news that the government is ready to sell majority stake in Concor, BPCL and SCI?
They attempted to do that with Air India but that seems solitary but now a major policy shift seems to have taken place. Because of the experience that people had with Gujarat, people assumed that Mr Modi would not sell strategic stakes in PSUs. But here is a big move that multiple companies have been put on the block and somewhere he had made one statement in one of his speeches that it is not the business of the government to be in business, but we did not see any follow up action. I think this is a very, very decisive move and a few days back, RBI governor talked about the governance of PSU banks. I do not know whether that could follow too.

Should one not look at this disinvestment drive as being borne out of desperation where the attempt is just to fix the fiscal? Is this a very deep rooted reform and could it change the course of the economy?
The government has accepted the economic situation in a manner which is expedient for them and one understands government behaving in that manner. Therefore, this is a measured response to the economic situation, choosing very carefully as to what they do. People demand all kinds of things and they have responded selectively. They did tax reforms and went to 15% tax for manufacturing companies. They have been very calibrated about what they want to do. So this is a calibrated response where it converges with the strategic path for time to come and in the current economic situation. They are positioning this on multiple axes. Looked at from one axis, it may seem that oh! There is this need to balance the fiscal situation and on the other path, I clearly see that this is a strategic move.

What do you make of the preparedness of the government because there is this fiscal deficit number which they need to take care of and time is ticking. What do you make of the preparedness of this current leg of disinvestment process?
The whole point is that the government has a speed issue and we cannot help it. Their hands were full with many things and which were clearly bigger priority and so this has come later in the day from a fiscal point of view, completing the transaction to benefit the current fiscal. But then if you have visibility, people take it in their stride and say that alright we understand, this number could have been this much. At the end of the day, these are perceptions.

You always say that in markets history may not repeat itself but it certainly rhymes.It looks like history is rhyming again for PSU stocks. Remember 2000? PSU stocks were undervalued and then the disinvestment process started and PSU stocks were in a multi-year bull run. Could we see a repeat of that?
I would not want to make the stock market process overly simplified because there is always a lot of learning involved. Some stocks never come back. So, I would be cautious about it but clearly we need to see more action. We need to see Air India sale happen. There will be more interviews and more clarifications in days to come and one should really get into stocks that are sustainable rather than on any theme or fashion or just a fancy trend.

There is no marked improvement in any of the high frequency data points. Even though corporate tax cut has kicked in, it has not translated into great commitment by any of the corporate groups. Do you think that somewhere markets run the risk of losing patience at least on the economy front?
It is a very difficult situation. Clearly the market seems stretched when we look at the top companies and leaving some 50-75 stocks, not many are performing. The valuations are not reasonable by any stretch of imagination. But then we look at a world where one-third of the bonds are rallying at negative interest rate and another scenario is emerging. Now that India is a globalised market, somehow those forces are also impinging on us which means people are looking for capital protection even at a little cost. That is what negative interest rate means. We have not seen negative interest rates in India and therefore we cannot imagine how an intelligent capitalist could be happy with negative interest rates. But that’s how the world has come to be in the last few years and so there may be a flip situation where people are paying high values for stocks and ideas that they think are sustainable and living with it.

So no telling if some of these valuations will remain. The ground level reality is we have had a slowdown. There is no denying it but let us keep doing the strategic things and let the system adjust in its own way. So the government is refusing to give out sops. The one they did, the Rs 25,000-crore initiative on real estate is amongst the first initiative which is a very good move and which is very measured. You want to deliver the dosage where it can have the greatest multiple effect. I hope a little more on that kind of thing will be a good response to market situation and yet be within the strategic direction of the government.


What next should happen on the disinvestment front?
The question as we see is which are the money guzzlers which are clearly strategic for the country? You need an oil refinery, maybe you need a few banks and you need a few of the other assets and I am not getting into all of them. We have seen the Hindustan Zinc model, we have seen the Balco model and some of them have proved to be fantastic. It does take time for political dispensations to absorb all of this, This is not always the top most priority.

I think if the government has come around to this view that we get out of Air India at all cost, it is a very different approach to Air India divestment now from what it was two years ago. Now they have made these moves and you see some thought has gone into deciding that we want to hold Concor in a certain manner and some assets we want to let go fully. One hopes that this thinking process evolves and leaving some assets, they find an intelligent way of divesting some fully and some partially and benefit from them.

It makes markets happy if some strategic disinvestment is done by differentiated rule. The way BSNL was sold and the way Hindustan Zinc was sold were entirely different.
Yes, even this little decision that has come, has got its own shade which is very good. You know a lot of thought has gone into it and we can come up with many combinations for the rest of the companies also.

You always explain to our viewers that markets always vote for rate of change and they are forward looking but given that markets are at an all-time high, earnings have not recovered. Somewhere do you think markets are only going higher because of liquidity?
Liquidity is always one of the biggest factors in the market and to the extent that they are going into solid idea, rather than into dogs and cats. It is not a liquidity driven market in that sense. It has got liquidity and it has also got intelligence in it. Yes it is not everyone’s cup of tea to buy highly valued stocks but then there are all kinds of money in the market. The market has flummoxed many and if one were to read that the market at its top is due to local functioning, the local performance would be completely misleading but yes this is not what we would call a purely liquidity driven market. Some of the stocks are liquidity driven but it is quality driven as well. Indian market is different from a classic liquidity driven market where liquidity becomes blind and enters every home.

How would you define risks for long-term investors in a market where Nifty is at an all-time high and quality stocks are trading at PE multiples?
We should never look at whether the market is at an all-time high or all-time low. That is for very technical kind of people to look at. We must just look at the prospects for the stock you want to invest in. Look at the valuations, look at your risk appetite and invest. There are a lot of other stocks which are quality but they do not have current momentum. Cheap prices are the biggest friend of an investor and that is what they should focus on and forget high markets, low market whatever etc.