We are in for tough times over the next three to six months: Pashupati Advani

“It looks like crude is going up and therefore there is going to be higher oil prices. We got a reprieve because of a slight drop in the duties but I do not know if we can get another reprieve but I think it is belt tightening time,” says Pashupati Advani, Founder & CHairman, Global Foray.

How are you looking at the overall set up at the current juncture? Do you think the relentless selling pressure from the FIIs will continue?
First of all, on Wednesday, there was a rebalancing of the MSCI Index. That is going to have some effect on the market. I am not sure if it is positive or negative but I think net-net they will be taking money out of the market again today. The reality is that we are actually a followers’ market and according to me as crude is going up, that is pulling the European and the US markets down. We are just following suit because trickles from our market go back to the US or go back to Europe in a sense of trying to buy on dips. Therefore, we are seeing this consistent selling.

I think that we have been on the top of the pile in terms of valuations for the last year or so and now people are taking profits off the table. Unfortunately, it has come at one shot and so we are seeing a lot of money going out from our perspective. But from a global perspective, it is not that much. Those are my thoughts basically on the markets but generally the optimism on India is high.

I feel that India is a place to go but there is still a lot of confusion about how to do it and also a lot of the existing players are taking money off the table because they are seeing opportunities in other emerging markets. If one is an emerging market player, one would be looking at buying on dips in China, buying on dips maybe even in Russia. So where is that money coming from? It is coming from India and therefore we are seeing selling and those countries are seeing buying. That’s the way it is, I guess.

It seems the unlocking theme and revenge travel is really playing up.
Revenge travel is a thing and I think revenge travel by Indians is a big thing. I think people have taken the May and June holidays to get out of India and go to cooler climes. Somebody sent me a Whatsapp which showed that Delhi is closer than Mercury to the sun. I guess India had it worse than the rest of us.

Are you looking at any of the agri themes? Are you going to bet on say fertilisers or anything that linked close to rural economy, based on the monsoon projections back home?
Yes for sure one has to go back into fertilisers because this is the buying season. People got a little surprised about this movement in steel because of the steel export ban and all the things that went with that. Steel was having a great run and suddenly it got smacked in the face due to regulation. That puts a different paradigm as to whether the government is going to tax any industry that looks like it is doing well?

This seems to be prevalent not only in India but all over the world and that is a kind of a watch out. So one can ride an industry to a certain level and then suddenly the government will put some twist on some kind of taxation on it, like we have seen today in real estate with stamp duty going up. Maybe it will come on fertilisers too, though that is a difficult industry for them to add any kind of duties to, But the reality is they could and I think that is part of what is going because governments need money to pay for their social welfare programmes.

Where does the entire consumption story lie? Incomes are moving up but so are expenses because of inflation and just everything is elevated because of inflation. Would consumers cut corners when it comes to stories like Bata or any other?
Well I would say that everyone has got to balance their budgets and it starts at home and if suddenly one needs another pair of shoes, it is obviously these marginal sort of expense which will be cut off. Bata benefits because at a large extent it caters to the office shoe market and the more formal market and that should survive. But some of the other players may get hit.

I think travel will also come off because that is a discretionary spend which is not required but it is all heading to a point. The question is are we going to raise salaries so that the people who have the money can get even more money or are we going to say no and stop and cause some pain all around? It is going to be more of the latter than the former. I think we are in for tough times over the next three to six months.

What is the take when it comes to autos? Would this sector be a bit of a write off or would you be very selective?
People about a month or two ago were optimistic and wanted to come and buy autos. So they put their money down to take delivery, now the deliveries are starting to come though but the supply chain is still a problem for chips. What is going to happen is that some people are going to back away and walk away and maybe the numbers will not be as rosy as they are projected to be, but for now everyone is smiling.

But it looks like crude is going up and therefore there is going to be higher oil prices. We got a reprieve because of a slight drop in the duties but I do not know if we can get another reprieve but I think it is belt tightening time.

From a fundamental standpoint, if we did see crude oil prices come off significantly over the next five-six months, would that take the markets on the next leg higher.
Yes for sure. Crude oil is our life blood. We have a huge import bill because of it. Our domestic production is going up but we are no longer near where we need to be to be self sufficient. It will probably get there in the next three to five years but the reality is that we are dependent on crude oil prices coming down and we love to see crude oil at $75-80 again. But I do not see it happening in a hurry. We are going to be in this $110-120 range for a while and that is hurting us.