Next couple of quarters will be trying and then it will turn a stock pickers’ market: Dinshaw Irani

“Frankly, the stocks that represent the index are maybe better than what the overall India Inc is looking at. If you are talking about a 6.5% real GDP growth, you are talking about a nominal growth of 10-10.5%; add another 2-3% of extra growth that these stocks will get -- 13% is what we believe will be a standard growth going forward,” says Dinshaw Irani, CIO, Helios India.

How can anybody run a portfolio when you are underweight on banks? You own HDFC Bank, you own Kotak Mahindra Bank and you have bought SBI. Am I right?
Yes, you are right. In fact, financials is one sector you cannot avoid in this market. We had the chaat, the laddus are on the way now.

What should one do now that global markets have made a convincing comeback? The rupee strength is obvious and the more stability emerges at global level, the more will India appeal in a sense things will change in our favour?
Our conclusion has always been that for India to outperform, global markets need to stabilise. I think that is what has happened and frankly, if you have a market of this size – India being the fifth largest economy today and likely to be the third largest before the end of this decade – cannot be ignored, especially at the pace it is growing. Our call is that the Indian GDP will be the fastest growing in the world in a market of this size going forward for the next four, five years. This market cannot be ignored by global investors and I think India has secured its space in history going forward.

Secondly, look at the domestic flows. Today, the SIPs are at $1.6 billion a month and if you look at the other sticky flows which are NPS, EPFOs and ULIPs, we are talking about a $3 billion flow every month coming into the markets in equity, which is undeniably a huge amount. So that way the absorption can be pretty good.

In fact, I remember earlier, you had asked me if we were to compare the rally in our stock markets with a train journey between Churchgate and Borivilli where we are today and I said Marine Lines. I stand corrected, I think the train has just left the station.

One has to really enjoy the joyride with a paid ticket which is the fee to a fund manager like you. What is the best way to maximise now? Should one have a minimum 3-5 year timeframe and do you think equities from these levels when markets are at an all time high, can still give a 10-12% return in the next three years? A Shriram Transport senior citizen FD is giving 9% return. Why would somebody come to equities if the projected returns are 12-13%?
If you were to work backwards the GDP growth that we are projecting, normally markets are slaves to growth. It could be another name for GDP and the index is normally a play on GDP growth because that is what earnings growth are going to be because the index is a representation of the GDP.

Frankly, the stocks that represent the index are maybe better than what the overall India Inc is looking at. If you are talking about a 6.5% real GDP growth, you are talking about a nominal growth of 10-10.5%; add another 2-3% of extra growth that these stocks will get -- 13% is what we believe will be a standard growth going forward.

Frankly, the market has already hit a new high. I do not think it is a high which is going to remain for a while. We will again be crossing that high going forward but the fact is the next couple of quarters are going to be trying and that is when we believe that it is a stock pickers’ market which will play out over the next couple of quarters.

The base case is that the US will start looking up again from June onwards and that frankly ties in along with the fact that our elections are also around the corner in April, May of next year and normally nine months earlier the election rally starts. So these couple of quarters are the ones which are going to give an opportunity to get in and that is what we tell our investors – do not come in on a lumpsum basis, stagger your investment over a STP or SIP and that is how we play this out.

With the markets almost closing in on a record high, are you tempted to add positions or maybe cut back on some positions somewhere?
We keep doing that in our portfolio on a regular basis. We do not wait for the market to hit a new high before we take a call on the stocks, we keep doing that on a regular basis. We may have sold some stocks which were probably at the bottom of the market if at all and so that does not work with us. We take a very studied bet on a longer term basis and that is why these movements do not perturb us to that extent.

In fact, when the markets are down also, we look at opportunities to buy so it comes with a conviction and that conviction basically comes with the fact that you are looking at a growth, Normally we identify stocks which have got five, six years of a runway of growth. For us, long term does not mean that we buy and forget. We look at them every short term and that is how these short terms add up to a long term. So it is a constant evaluation process that we undertake and that is how if we are convinced on the stock it remains with us.

Piramal Enterprises has entered the green today. Year to date, it has not been a good performance at all and it is down over 60%. Having said that, there has been a one-time write-off in the stock and it got punished. Will you continue to hold this position?
It has frankly been a disappointment. We were not expecting this one off which came about as it was a huge amount. We are going back to the drawing board on this one. We are evaluating that stock but frankly these are the opportunities if you get convinced on these stocks. We are waiting for further contact with the management to understand what has really happened, where they went wrong though the conference call was there but we need further clarity on this stock.